FibCalc Examples

The opinions expressed in this column are based on how I interpret Events, the Market, and the Charts -- unless otherwise noted --  and are not recommendations to buy or sell securities. Trading stocks involves risk. Never put your money on the line without a thorough understanding of what you are doing, and why you are doing it, based on your own personal experience. No Chart Pattern works out the way we think it should every time,  so it is vitally important to have a protective Stop-Loss and/or Exit point planned before entering into a trade. Do your own research and testing before attempting any of the techniques discussed in my columns, materials, courses, or emails. I cannot be held liable for any trading decisions based on any information obtained from me. - Rick LaPoint

Real Examples from the Market

UpTrend Retracing Down

DownTrend Retracing Up

Lesson: 50% Phenomenon Theory

50% Phenomenon Down

Pivot Dates by Ratio

Wednesday 11/07/01 - Here is an example of how FibCalc called the Profit Targets for today's QQQ. 

Our Low was 37.50 and our first High was 38.29. We Retraced to a .786 Bounce Point of 37.67 (Actual was 37.63). Our first Target to be strongly hit was Target 1.00, 38.46 (Actual Price was 38.43, off by .03 cents). From there we fell, and bounced and fell again. After hitting our first Target we could have walked away, or began another series. But assuming we held steady, we see that Price came back up to our first Target point of 38.43 and paused before climbing to our next Target of Fib 1.236 38.65 (Actual 38.70, off by .05 cents). We fell a little before climbing to our Target Fib 1.500 38.85 (Actual 38.80, again off by .05 cents).

There were several ways to play today's highly volatile chart, of course, but by using only the beginning High and Low we were able to anticipate the major peaks of the day. Even if you don't trade the Indexes, they can give very important Signals to the day's Market Direction.

How Fibonacci Retracements Work

The most well-known aspect of Fibonacci stock trading is the UpTrending stock that falls back, dips, or Retraces to a point below it's most recent high.

My research indicates that the most important Fibonacci Ratios are:

.236   .382   .500   .618   .786

Note that .236 and .786 and not "Standard" Fibonacci Ratios. Yet, I have seen these two Ratios appear repeatedly, and I therefore consider them to be very important. Indeed, I would not consider a Fibonacci Analysis without them.

If a stock rises from 100 to 150, it may then lose 38% of the value of that 50 Point rise, as Sellers step in to take profits. This would bring Price down to 130.90. At this level Buyers may step in as they determine that Price is now attractive, so the stock bounces off the 38% Retracement level and begins rising again.

Now we have risen past our 24% Target, and have hit the 38% Target of 150.00.

Once it is determined that price is falling from the High of 150, we can input the  Low  and the  High  and see the calculation results. The  Retrace  row shows the potential Bounce Ratios, and the  Bounce  row is the Target.  We will be watching these levels while Price is falling for signs of a Reversal in order to enter a Long position. In our Example above, the  .382  Column shows our  Bounce  Point of  130.90 . Once we see Price stabilizing here we can buy, or wait for Price to begin rising again if we desire confirmation.

According to Fibonacci Theory, the Target Ratios are the most likely places to see a Pause or Reversal.

The  Profit Targets  are based on the  Target Ratios . As Price is rising we will be watching each Profit Target for signs of slowing or Reversal back down, where we will make a decision to sell and take our profit, or wait to see if Price will move upward to the next level.

Using our example above, notice the the  .382 (38%) Target Ratio  gives us a  Profit Target  of  150.00 .

And of course we will be watching for any signs of Pattern Failure, which would alert us that it may be time to exit the Trade according to our personal Stop Loss strategy.

Why 2 Extra Bounce Points?

It's easy to see why I stress the importance of the 24% and 79% Retracement levels that are omitted from the Fibonacci  Standard. Price did a great deal of bouncing at those levels today.

Here is how we would project our Day Trade Targets (Actual's in Parentheses):

Disclaimer