Fibonacci Price Target

A Fibonacci price target identifies, in advance, possible turning points.  Starting with the larger time frame weekly bars, then the daily bars, and finally the intraday charts, you will see, step-by-step, just how to you can find trades that respond well to the Fibonacci retracement levels.

Using Qualcomm as an example, you will know how to identify the May 2003 low as an opportunity to take a long position in this stock with low risk.

Let's be honest here.  This is an "after the fact" example and it is easy to pick out the best examples that show what you want to show.  But I think you will appreciate this example once you see what "might" happen.

First, identify the obvious high and low and mark off the 38%, 50%, and 62% retracement levels.  In this case, QCOM traded below the 62% retracement level before resuming the uptrend.

It should be obvious that the normal retracement levels did not anticipate when this stock might reverse.

Second, consider Fibonacci time retracements.  Measuring the time from from the 06 December 2002 high to the 14 February 2003 low and projecting likely turning points using Fibonacci ratios of that time off of the 21 March 2003 low shows the following.

The 78% time retracement (78% is the square root of the Golden Mean, 0.618) shows QCOM making the May low during the exact time frame projected.

Third, using the same swings, measure the price swings of the initial downswing (December to March) and project the likely support levels using fibonacci ratios.

In this case, QCOM makes an almost perfect hit of the 100% price projection.  The projected price is at $29.691, the actual low is $29.580. 

So far we have the standard 38%, 50%, and 62% retracement levels not doing a good job of anticipating a reversal.

The 78% time retracement and the 100% price projection does indicate that the May low is a likely turning point.

The next step is to move down to the daily time frame and see what is happening.

The day that QCOM makes the May low the stock gaps down and forms a reversal bar to the upside.  The stock makes a new low, but closes greater than the open.

A reversal bar at a projected price target sets up a low risk opportunity to enter the stock.

In this case, the next day as the stock trades above the reversal bar's high, traders would take a position.  If filled, a protective stop goes below the reversal bar's low.

Interestingly, once the stock starts moving higher, another opportunity to enter a long position presents itself.

In this case, the stock reverses right at the 50% retracement level of the new upswing.

Fast forward to December 4th 2003.  QCOM has tagged the 100% price projection of the August 2002 low to 6 December 2002 high to 16 May 2003 low AND did so in almost 162% of the time.

Now do you see why I showed you the previous example of QCOM making a reversal low right at the 100% price projection calculator and 78% time retracement?

Stocks that respond well to Fibonacci analysis have a habit of repeating the same behavior.  In this case, QCOM is setup for a sell short.

Here's what the daily chart looks like ... note the big gap up.

The 5 minute intraday chart shows no signs of weakness.  Just because the stock has hit an anticipated price level doesn't mean it is going to reverse.  What needs to happen next is for QCOM to give a sign of reversing back down ... and that hasn't happened yet.

Traders will wait patiently for the stock to signal that it is indeed moving down.  Until then, do nothing.

There you have it.  An example of Fibonacci price targets anticipating likely turning points.

Trade well!!!

Recommended

 Stephen Pierce's Fibonacci Secrets - a step by step blueprint to understanding the proper applications of Fibonacci to your trading. The course includes the Fibonacci Chart Book, the 4-point Fibonacci Trading Formula, Fibonacci tutorial videos (several hours), the Focus Point Fibonacci Trading method.

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