Stock Trading – Does Fibonacci Trading Really Work?
Let’s me start by asking you a question. Does a gun kill people? Is the TV bad?
The answer is no.
A gun doesn’t kill people by itself, and TV programming is what makes it bad or good. So it’s the same with Fibonacci styled trading. You see, it can work or not depending on how it’s used and what you think of it. If you think that Fibonacci is the holy grail, then you will be really disappointed. I mean, you can see that if you overlay the Fib lines on the charts, you will see lots of examples of it working. But that’s hindsight.
You need to use Fibonacci lines like a guide. It’s only a guide. It’s not the answer to all your trading woes. Use it as confirmation. Use it to affirm that you are making the right trading decisions.
In general, the 50% line is my favorite. I like a retracement that goes half way the best. If the price has retraced beyond the 50% line, it shows significant weakness in the original movement.
Of course, that doesn’t mean that it’s a bad trade. It just means that it’s a lower probability trade. In general, if you select investments and trades that are of a higher probability, you will do better. In the same line, if the price hasn’t dropped all the way down to the 50 line, it shows that the price hasn’t dropped far enough. By jumping in then, you can give yourself some good losses (yeah, I’m being sarcastic).
Stick with the 50% line, and you’ll do much better.
By: Nathan Pennington
