Quick Start

the charts have 4 horizontal lines on them. These lines are the 50 day fibonacci levels for that stock or futures contract. If the line is red, it is acting as resistance to the current movements of the stock. If it is green, it is acting as support to the stock. Remember that a fibonacci level acts as resistance when price is moving up, and support when price is moving down.

Fibonacci levels

Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers:- 1, 1, 2, 3, 5, 8, 13 etc. You will notice that any given number is about 1.618 times the preceding number (and approx. 0.618 times the following number). Users of Fibonacci tend to focus on 4 theories - arcs, fans, retracements, and time zones, which are supposed to highlight reversals in trends as price near fibbo lines. Fibonacci Arcs are created in the following way:- draw a line between two extremes (e.g a major peak and trough). Centering on the second extreme, circle 3 arcs which intersect the line at the Fibonacci levels of 38.2 percent, 50.0 percent, and 61.8 percent. Support and resistance is then supposed to be provided by the arcs. Fibonacci Fans are created by once again drawing a line between two extremes. Next draw a vertical line thru the second point, and divide it by drawing lines from the first point to intersect the vertical at the Fibonacci levels (same percentages as before).

These fan line are supposed to provide support and resistance. Perhaps the most popular fibbo technique is retracements, created as usual by drawing a line between two extremes, then drawing nine horizontal lines that intersect the first line at the Fibonacci percentage levels of 0.0, 23.6, 38.2, 50, 61.8, 100, 161.8, 261.8, and 423.6. Prices tend to 'retrace' after significant moves, and the followers of Fibonacci levels claim that these levels are very accurate support and resistance guides. Finally, time zones are vertical lines, spaced at Fibonacci intervals of 1, 2, 3, 5, 8, 13, 21, 34, and so on. Practioners look for significant price action at or near these lines.

Free Trading with Fibonacci Article

Fibonacci levels are often used by stock traders as indications of where support and resistance can be found. These indications give on the one hand good entry points, as price breaks out thru a fibonacci level in the trend direction, and on the other hand, good exit or profit taking points as price falters and reverses against the previous fibonnaci trend.

So how do you calculate and use these fabulous fibonacci levels for your swing trading activities? The answer to the first part of the question couldn't be simpler. Just go to http://www.fibonnaci.com, a free site offering the latest fibonacci numbers for pretty much any stock you care to think of. Enter the symbol for the stock (e.g. IBM for International Business Machines, or EBAY for the world's biggest auction site) into the little text box at the top of the page. Then click the 'OK' button, and your levels are returned immediately, together with a small chart of the stock, and links to historical data, and bigger charts etc.

The site currently supports the US, Canadian, UK, German, Australian and Asian stocks symbols. Just click the one you want for immediate fibbonaci levels and charts.

Once you have your levels, what do you do with them? Easy. Let's look at ADBE (Adobe Systems, a software company - http://www.fibonnaci.com/members.asp?thesymbol=ADBE). At time of writing, the fibonacci levels for ADBE were:- Resistance at 37.63 (approx.), Support at 36.57, 35.71 and 34.85. You can tell by the fact that there is resistance at the top at 37.63 then support at 36.57 that the current price is probably somewhere between the resistance and the support below it (i.e. 36.57). So what you are looking for is either a breakout UP through the resistance, or a break DOWN thru the support. Whatever it does first is a good indication of where the stock is going.

For example, if price rushes up and powers thru 37.63, then it is likely to run up quite a ways. On the other hand, if it barely manages to push thru that level, then falls back, it is likely to sink all the way down to the first support fibonacci level at 36.57. And indeed, if it then breaks down thru THAT level, it is likely to run all the way to the next support at 35.71 (or even all the way down to 34.85!!!)

Here's another fibonacci trading example. Ebay (http://www.fibonnaci.com/members.asp?thesymbol=EBAY) at time of writing gave back 3 levels of resistance at 45.88, 45.35 and 44.81, plus a support level at 44.15. As you can see on the chart today, having failed to breach the fibonacci resistance level of 45.88, it fell all the way thru the resistance levels right down to the support at just over 44 where it paused. Remember that a resistance, when breached, becomes a support when price moves in the other direction, and vice versa. That's really all there is to it. Look for rejections at support or resistance to see price turn around, or penetrations to confirm breakouts. When a breakout or rejection occurs, look for it to run to the next level, be it fibonacci support or resistance.

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