Sun. Jan 29th, 2023

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Fibonacci Retracements are NOT Foolproof

2 min read

Fibonacci can provide reliable trade setups, but not without confirmation, so don’t believe Fibonacci alone.

When fitting Fibonacci retracements to cost action, it is often good to stay your reference points consistent. So, if you are referencing the lowest price of a trend through the close of a session or the body of the candle, the best high price should be available within the body of a candle at the top of a trend: candle body to candle body; wick to wick.
Incorrect analysis and mistakes are created once the reference points are mixed—going from a candle wick to the body of a candle.

New traders often try to measure significant moves and pullbacks in the short term without keeping the bigger picture in mind. This narrow perspective makes short-term trades more than a bit misguided. By keeping tabs on the long-term trend, the trader can apply Fibonacci retracements in the correct direction of the momentum and set themselves up for great opportunities.

Fibonacci can provide reliable trade setups, but not without confirmation. Applying additional technical tools like MACD or stochastic oscillators will support the trade opportunity and increase the likelihood of an honest trade. Without these methods to act as confirmation, a trader has little quite hope for a positive outcome.

Day trading within the exchange market is exciting, but there’s tons of volatility. For this reason, applying Fibonacci retracements over a brief timeframe is ineffective. The shorter the timeframe, the less reliable the retracement levels. Volatility can, and will, skew support and resistance levels, making it very difficult for the trader to really pick and choose what levels can be traded. Not to mention within the short term, spikes and whipsaws are quite common . These dynamics can make it especially difficult to place stops or take profit points as retracements can create narrow and tight confluences.

 

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