Using Fibonacci Extensions in Stock Markets
In this video, Richard Adcock, a Technical Analyst at Corellian Academy, discusses Fibonacci extensions as a tool for identifying support and resistance levels in uncharted market territory, especially when the markets break to new highs or lows. According to Adcock, Fibonacci retracements can be used to identify support or resistance areas within a downtrend or correction within an uptrend. There are three key retracement points: 38.2%, 50%, and 61.8%. These points offer projections of potential support and resistance levels when the market reaches a new extreme.
An example of a Fibonacci extension is provided by Adcock using the S&P 500 during a sell-off and subsequent rally. The percentage levels (38.2%, 50%, 61.8%) are calculated by taking the significant high and low and projecting them upwards. In the absence of previous highs or lows, these levels can be used to identify resistance points. Using a weekly chart, an illustration of how the market encountered resistance at the 38.2% extension but ultimately broke through, reaching the 62% and 100% extension levels, was presented. Considering potential turning points or acceleration triggers, it is crucial to monitor these extension levels.
Adcock illustrates how Fibonacci extensions can be applied to shorter-term perspectives by zooming in on a daily chart during a correction period. A potential support or resistance level is indicated by the market approaching and breaking through extension levels. Breaks above or below these levels are emphasized, suggesting potential trend accelerations or reversals.
In conclusion, a Fibonacci extension is a valuable tool for traders operating in unfamiliar markets as it can help them identify potential support levels and resistance levels, offering them insights into potential trend reversals and accelerations. These levels can be used by traders when making decisions, such as taking profits, reversing positions, or gauging the strength of the current trend.
