Fibonacci retracement trading strategy basics / Fib levels introduction tutorial for beginners explained, fibonacci trading secrets techniques for dummies, fibonacci levels retracement extension 101 day trading, fib trading strategy david moadel
welcome to looking at the markets with
David Modell today I'm going to give you
a very basic introduction to Fibonacci
retracement now what is first of all
Fibonacci numbers were invented a long
time ago and they're numbers that are
considered very special both in nature
and in life and they can be very useful
for determining whether a reversal okay
a stock does not just go up in a
straight line it's like a zigzag okay
and so you know I might go up for a
while and then retrace or go back in the
opposite direction a little bit and then
go up a lot and then retrace a little
bit and then go up a lot so it's like a
lightning bolt pattern or a zigzag stair
stair steps whatever you might want to
call it so you have these little
retracements in there and you want to
know with every little retracement is it
just a minor bump in the road or is it a
real turn around okay
yeah because let's say you're you know
you're long you've bought a stock okay
it's going up but then it has these
little these little retracements you
want to know should I take profits or is
it likely to run is it likely to you
know keep going up after the little bump
in the road all right and then same with
shorting a stock if you're shorting a
stock it's going down it's going to have
retracement it's going to come up a
little bit then go down then come up a
little bit then go down so you want to
know whether those are just little you
know little retracements little little
stair steps or is it a real reversal is
it a real turnaround and is it going to
come
up and keep going up and you know should
you take profits alright so Fibonacci
numbers can be very useful the
percentage is you want to know R and
there are other ones but and we're going
to focus on retracement and not
extension today all right so we're going
to focus on thirty eight point two
percent 50 percent and 61.8% there are
other levels but these are the most
popular ones interestingly enough fifty
percent is not an actual Fibonacci
number not originally
but it's commonly used alright so we're
going to focus on these three let's
clear it out and
okay so first thing you want to do is
now you can calculate them with a
calculator but why do that nowadays you
might as well just use the tools that
are online I like to go to google and
type in Fibonacci retracement calculator
and you get a whole bunch of them and
you can pick your favorite one all right
today I'm going to use the one from baby
pips comm there it is right there on
Google I just clicked on it and there it
is
all right baby pips calm it's for forex
trading but I've noticed that it's it's
really just calculating numbers for me
it doesn't matter whether you use this
for forex or stocks or commodities
whatever the numbers come out the same
just for calculating the you know it's
just multiplication basically alright so
we're going to use another free tool
here this is from stockcharts.com I'm
going to use their basic charts okay so
this is Pepsi this is the daily chart
I'm going to use it as an example and
you can see an uptrend here
alright so let's say you you noticed
that there's a resistance level here you
notice that Pepsi had an up move but
then it could not get above 104 and that
was resistance and then it just couldn't
get above it and then it went down then
went up to that 104 level couldn't get
above it went down and finally came up
to it and broke through so I'm going to
I'm going to consider this the you know
the starting point
of the uptrend and you know and and then
this is the ending point of the uptrend
so far about 114 and notice that it hit
114 or so and then it's starting to
retrace a little bit and you might be
wondering if you bought here you might
be wondering oh is it is it going to
turn around and just keep going down so
is this an actual reversal or is it just
a little retracement here and is it just
a little little stair step it's just
going to really turn around and keep
going alright and this is not a hundred
percent accurate this Fibonacci tool
yeah it's not 100% reliable no indicator
is on percent reliable so you have to do
your own research make your own
decisions alright so what I'm going to
do is I'm going to consider this the the
end of the uptrend is like my zero
percent all right this is a starting
point of the retracement all right so
I'm going to draw a line here and
consider this the zero line oops
actually I'm sorry you have to you have
to click a note eight first alright you
click annotate on stockcharts.com after
you make your chart there it is okay now
after clicking a note 8 at the bottom of
the chart now I can draw my lines all
right I'm going to draw a line there we
go and hopefully it'll be accurate let's
see there we go
you can move the line a little bit and
then that's my starting point for the
retracement and then the end of the
retracement well theoretically it could
be the end of this up move here so we're
going to say 104
so you might consider the the high point
of the of the up move to be at the
beginning of the retracement and if you
might consider the beginning of the up
move to be the potential end of the
retracement that's one way of looking at
it alright so I'm going to draw this
line move it around a little bit make it
a little bit more accurate so 114 - 104
how far is it going to retrace is this a
real turnaround a real you know is it
just going to keep going down is it a
real reversal or not all right I'm going
to plug in 114 and 104 and I'm going to
use here it is for the calculator here
I'm going to use it in the uptrend
column okay because this is a
retracement of an uptrend alright if you
want to know if a downtrend is going to
retrace and turn around back up and keep
going you want to use the downtrend
section alright so I'm with the high was
114 the low was 104 calculate alright
and let's plot these three fib levels
here we'll start with
we'll start with the 38.2% that's one
ten point eighteen all right here we go
one ten point eighteen would be about a
little bit above 110 let's say we'll do
it like that a little bit lower than
that I think right above 110 there we go
okay and we're going to make that a
dotted line just because I feel like it
all right and then the next one would be
109 that's 50% retracement okay so be
right right in the middle there 109
makes sense and there we go try to make
it a little straighter
there we go and then so think about it
if that means if it turn around and then
went down you know 38.2% it would be
down to the - to this line if it if it
if it retraced 50% will be down to this
line let's do the third one 61.8% 107 82
whoops let's do it 107 82 that's almost
108
there we go maybe a little a little
lower than that there we go perfect all
right so we have our fib levels drawn
here or at least those three that I like
to use all right so notice that this is
not much of a trace of a retracement at
all it hasn't even hit that first level
here not to mention the second and third
ones now the idea here is so far your
you can be perfectly confident that you
know this is not a true turnaround it's
not just going to keep going down down
down
of course it always could stock market
is unpredictable but so far you can be
confident that the uptrend is intact if
it hits that first level all right but
then turns around and and keeps going
back up then you can continue to be
confident that the uptrend is intact if
it hits that middle level the 50% then
but then bounces off of it then you
could be fairly confident that the
uptrend is still intact but less
confident so you're more confident if it
if it goes to here or less it wasn't
even close here all right if it goes to
that first line or less and then turns
around then you can be very confident
that the uptrend is intact if it goes to
that second line or less you can be
fairly confident but not as much
now if it goes below this line then you
want to just ah you want to accept that
this is a true turnaround and is not
very likely to continue the uptrend okay
so if it goes down down down below this
line then if you have a long position
starting here you may just want to get
out and you know take whatever profits
even get because now it's very likely to
keep going down and now in other words
that's a real turnaround here again no
guarantees but at this point if it
crosses through that down through that
line you know the that's that's a true
turnaround it's not just a little stair
step or a little retracement there all
right now you can go in the other
direction as well all right so this is
AT&T and we see a downtrend here from
here to here is it going to keep going
notice there's no retracement at all yet
okay but there's going to be one at some
point you can be pretty confident of
that so let's click on annotate
and we're going to draw let's say draw a
line at 40 to about 40 to here and
another one at around let's say 30 I
don't know 3950 and you can make your
numbers more exact if you want to I'm
just rounding here to keep it simple all
right and so you want to know if this
downtrend if it's going to start to
retrace all right so really your your
zero is here and you're a hundred
percent is here let's go ahead and clear
that out go back down down trend let's
say the high 42 low 39 50 42 39 50
let's calculate that all right
we're focusing on the retracement not on
the extension today let's plot the first
point at let's say the 61 point eight so
we're going to go actually now let let
me do it right let's start at the 38.2%
retracement which is not much of a
retracement and that's forty point four
five five okay so forty point four five
let's let's say 40 and a half let's go
ahead and round a little bit which is
right about there maybe a little bit
below that line and there we go right
about there
I'm going to make it a dotted line all
right so that's that's if it if it
bounced here if it went up here then
that would be a very minor retracement
and you could be confident that the
downtrend is still intact and so if you
had a short position from here you could
probably just be confident that that
it's okay and that's just going to keep
going down in all probability let's say
the next one let's do the fifty percent
forty point seventy five that's an
easier number for me to to do
alright so that's right about there
right about right there okay so if it
retraces and hits this you can be
confident that this is the downtrend is
still intact but less confidence
so you got to be more cautious with that
and then finally a deeper retracement
would be 61.8% that's around 41 point oh
four five
can we just say 41 I think so 41 and a
little bit whoops 41 in a little bit
more so 41 and a tiny bit more right
about there there we go
actually yeah right right there okay if
a retraces and breaks through this line
if it goes further than that then
according to the FIB idea this is a true
turn around and if you went short from
here you may want to take your profits
and just just get out because it really
looks like the downtrend is over at that
point and it's not just a minor stair
step it's not just a minor retracement
all right and so this is a really
interesting idea it's based on really
ancient numbers that you see in nature
that you see in life and can be used for
trading I recommend using this with
other indicators such as RSI moving
averages things like that just to
confirm because you want to you know not
just rely on necessarily on one
indicator for your entire trading
strategy so this was an introduction and
by the way there is software that will
plot these for you okay I like to do it
manually but you know if you could if
you can find an app or software that
plots it for you the retracement lines
that's fine too
all right
and it is subject to interpretation as
well all right so if you found this to
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email address is David Modell at
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watching and listening and I'll talk to
you again soon