Regardless of performance and price action, all stocks will retrace their growth or decline due to people taking profit in the market. In order to achieve new highs or lows, there has to be someone who is willing to do the exact opposite. Here are some thoughts to consider when using the Fibonnaci Retracement.
Use this tool as a guide for targets or price taking points; not as an absolute
Typical retracements are no more than 40% with most being around 30%
In a recession, see which companies are holding the 30% pullback while other stocks are plummeting 40-80%
Remember, off new highs there is a....
80% chance a stock will drop by 50%
50% change that a stock will drop by 80%
Be sure to have an exit and to stick to it; you can always reenter the market
Using Fibonacci Retracement to show key levels in resistance and support (R/S). This tool is used after a downtrend from a previous new high (NH) or previous high. Key levels are the 38.2%, 50%, and 61.8%.
Note:
Always use a larger time frames to spot other R/S
Only watch the first video to understand how to draw the retracement
In the second video, listen to the explanation of avoiding or being careful of buying in at the 38.2% retracement level.
Note:
There are no guarantees that the stock reverses back up anytime soon and could easily drop back down to 0%; where we first started.
Later, you will learn about Elliot Wave Theory and how it can be used with Fibonacci levels
Using Fibonacci Extension to estimate unknown R/S. This is used when you have reached new highs and are looking for new R/S,
Note the comments on expected breakouts based on consolidation, ranging, and downtrends. Always put R/S above expected targeted move.