Fibonacci analysis is crucial for the modern trader and almost all traders use retractions and extensions as part of the strategy. They have proven over the years to have extraordinary accuracy in predicting market movements, which can help traders create strategies to make more profit. One of the best ways to make a profit with trading is to predict price breaks. With Fibonacci reproductions and extensions breakouts can be accurately predicted and when a trader uses an additional indicator to provide additional evidence some may be unsure when a breakout will occur.
Fibonacci reproductions and extensions accurately select the low and high points of a trend trader. Once this is done, the Fibonacci analysis can be applied to the candlestick diagram and some key Fibonacci ratios will be presented as a horizontal line in the candlestick diagram. The lines help to project resistance and support points and can also be used to suggest when a fracture may occur. The two key ratios are 38% and 62%, and often when a stock is trading, it can go back and forth between those two ratios.
If that is happening a lot and the market is stacked between these two points, the recovery suggests that a price break is near. When a price break occurs, the price of a stock will move dramatically out of the 38% to 62% ratios and the market will change significantly. The presence of price congestion between these two lines created by the Fibonacci retracement suggests that the market price will move and this is the time for a trader to act.
A trader could rely on the analysis provided by the Fibonacci retracement, and if so, it would be advisable to make a pending purchase and sell both sides of the current price with the corresponding loss stops. However, Fibonacci analysis is used in conjunction with another indicator to confirm whether the improvement will definitely occur. Using evidence from both indicators is a much more reliable strategy, as if they both suggest it is likely to happen, it is likely to happen but if they are against each other a trader should be out of the market.
The Bollinger Bands are great for announcing getaways and, when they start hiring, it’s a sign that a price break is going to happen. This behavior is known as Bollinger tightening, and even if a trader detects accumulations in the Fibonacci retracement, if he identifies, he can be sure that the rupture is immediate. Combining Fibonacci retracement analysis with Bollinger band analysis, a trader can confidently enter or exit the market based on the evidence provided. If the right move is made a trader can profit a lot or avoid losing money while himself. This strategy can also be applied to Fibonacci extensions because the same principles are used to determine the movement of the future market.