Instructions

Use Fibonacci retracement ratios to predict stock entry points. Looking at a chart for a stock, identify a recent swing trade high and swing trade low range. Calculate the range by subtracting the low price from the high price; then multiply it by a Fibonacci ratio. According to website swing-trade-stocks.com, the most popular Fibonacci retracement ratios used for entry points are 23.6 percent, 38.2 percent, 50 percent and 61.8 percent. Take the resulting number and subtract it from the swing trade high. Draw lines on the chart to represent these prices; these signal points that a stock will often hit before retracing back to previous highs. Traders often enter a stock on the way down, as it hits one of these ratios, in hopes of realizing a profit if the stock retraces.

Place trailing stops using Fibonacci extensions. After a stock has hit a bottom and commences to retrace, begin to place trailing stops as it passes through the same Fibonacci ratios — 23.6 percent, 38.2 percent, 50 percent and 61.8 percent — to lock in profits.

Tips & Warnings

References

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