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| Fibonacci
Calculator
- A Specialist
in Technical Analysis |
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The Fibonacci Calculator, when used properly, is
one of the most powerful tools in determining the support
and resistance of a stock. It is not however designed
to be used as the sole means for obtaining these numbers.
This bears repeating. The Fibonacci Calculator is a
great tool, but if you rely on its numbers blindly,
then you are going to be disappointed. Below, we'll
show you how to use Fibonacci, and we'll also teach
you how to use other tools in conjunction with it. Combined,
they will give you the best possible opportunity to
succeed as a trader.
Click Fibonacci
Calculator to open a working
demo of our program.
(limited to $10 - $20 stocks for non-members)
We will break this information up into several sections:
Definitions, Charts, Fibonacci, Summary.
You may want to print this page and keep it handy while
you are learning to use Fibonacci.
Here are some definitions that will help explain what
we will be discussing:
Support: A price level below which
it is supposedly difficult for a security or market
to fall. That is, the price level at which a security
tends to stop falling because there is more demand than
supply; support can be identified on a technical basis
by seeing where the stock has bottomed out in the past.
Resistance: A price level above which
it is supposedly difficult for a security or market
to rise. Price ceiling at which technical analysts note
persistent selling of a commodity or security. Antithesis
of support level.
Bollinger Bands: Trading bands, which
are lines plotted in and around the price structure
to form an envelope, are the action of prices near the
edges of the envelope that we are interested in. They
are one of the most powerful concepts available to the
technically based investor, but they do not, as is commonly
believed, give absolute buy and sell signals based on
price touching the bands. What they do is answer the
perennial question of whether prices are high or low
on a relative basis. Armed with this information, an
intelligent investor can make buy and sell decisions
by using indicators to confirm price action.
Fibonacci Numbers: A series of technical
analysis studies where charts and numeric relationships
are used to pinpoint high and low price levels for a
security. There are four popular Fibonacci studies:
arcs, fans, retracements, and time zones. The interpretation
of these studies involves anticipating changes in trends
as prices near the lines created by the Fibonacci studies.
Entry Level: The price you will try
to enter a trade at.
Targets: The price your goal is at.
Stops: The price at which you will
exit a trade if it is going against you. In our system
this is nearly always .20 (20 cents) from our entry
level. Swing trades and Special Situations are normally
.50 (50 cents).
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| How to obtain Support and Resistance from Charts.
Now, let's take the a stock, in this example
we will use KLAC, and see what the chart says.
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The chart above has Bollinger Bands turned on. Those
are the blue lines above and below the red and green candlestick
bars. These bands are set to (20,2) in our software, which
is the default for most programs that have this feature
in their charts.
Based on the chart above we can identify support and resistance
levels for KLAC. First, we need to identify the high and
the low seen in the chart. An interval of 1 hour is usually
fine to determine support and resistance using the software.
As seen here, the low in KLAC is near 48.67 and the high
is near 49.05. We disregard the blip higher to 49.15 because
it was a single trade (evidenced by the single line) and
it was probably a misquote.
Next, we identify the Bollinger support and resistance
levels. The lower Bollinger band shows support at 48.65
and the upper Bollinger band identifies resistance at
near 49. The Bollinger bands tell us to expect accelerated
moves if they are broken. We can see the strong move
experienced as the upper band was broken for example.
The bands do not represent exact support or resistance
levels however, but they are usually close.
We now have the following information:
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| KLAC |
Support |
Resistance |
| Chart |
48.67 |
49.05 |
| Band |
48.65 |
49. |
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| Based on this information we should take the extremities
to help us find support and resistance. That means that
we should use 48.65 as support and we should use 49.05
as resistance. If we are using these numbers to identify
entry prices or stop prices it is usually ok to be a little
lenient though because these numbers are not always exact.
Entry levels:
If you were looking to buy KLAC, choosing a price near
support, or near 48.65, would be fine. You do not need
to get 48.65 exactly.
On the other hand if you were looking to short KLAC
choosing a price near resistance, or near 49.05 would
also be fine because you really shouldn't expect to
get 49.05 exactly.
Targets:
If you were using these numbers to identify a target
on a short position you would use a number near support,
or near 48.65, but not necessarily 48.65 on the dot.
48.7 would be logical.
On the other hand if you were using these numbers to
identify a target for a long position you would use
a number near resistance levels, or near 49.05, but
not exact. Close to 49 would be logical
Stops:
If you were using these number to identify a stop limit
on a short position you would want to use something
just beyond 49.05, the resistance level. In this case
49.1 would seem logical.
On the other hand if you needed to establish a stop
limit on a long position, it should be placed just beyond
support, or just below 48.65. In this example 48.6 would
be logical.
Possible Trades:
From this information we can imagine 2 possible trades,
one long, one short. These are:
1. Buy KLAC near 48.65 target near 49 stop 49.6.
2. Short KLAC near 49.05 target near 48.7 stop 49.1.
How to
use the Fibonacci Calculator.
This section references the Fibonacci Calculator we
often use to identify support and resistance levels
in conjunction with the charts. This calculator is free
to members of Stock Traders Daily also. The calculator
that we offer is very accurate at predicting support
and resistance levels and everyone should learn how
to use it. You can open it from the Clubsite menu tab
and choosing Fibonacci Calculator from the menu. We
also advise that you review an educational chat that
we had recently on Fibonacci Numbers to better understand
them. This archived chat session can be found by clicking
on the archive link at the top of this page, selecting
educational chats, and then selecting the chat titled
'Sup & Res using Fibonacci Numbers.'
Please review the snapshot of our calculator below
and then read the discussion below that.
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The Fibonacci calculations are based on the high and
the low of the day in KLAC. Prior to the snapshot of the
chart in the section above the stock had hit more extreme
lows and highs. These snapshots were both taken at the
same time. The absolute low of the day was 48.29 and the
absolute high of the day was 50.26. The Fibonacci calculator
offers us a different read on KLAC and it tells us some
support and resistance levels that the charts don't.
Notice the T1, T2, T3 levels offered in the calculator.
The left column represents support levels and the right
represents resistance levels. This calculator is telling
us to expect strong support near 48.35 and to expect
a decline all the way to 47.14 if that breaks.
It is also suggesting that strong resistance exists
at 50.13 and that we should expect a surge to 51.28
if that level breaks.
If we chose to use the Fibonacci numbers to trade with
we would be willing to do one of these 4 things:
1. Buy KLAC near 48.35 with a target near 50.1 and
a stop under 48.25.
2. Short KLAC near 50.1 target 48.5 stop 50.27.
3. Short KLAC if it breaks 48.25 with a target of 47.14
and a stop of 48.4
4. Buy KLAC if it breaks 50.27 target 51.28 and a stop
of under 50.
Now in this example we are using the same mentality
as we did in the charts by being forgiving in our entry
levels, targets, and stops. In addition though we have
extended the stops a little farther to reflect the absolute
highs and lows of the day. In other words, we have support
and resistance levels so close to the low and highs
of the day that we might as well place any stops just
below the lows of the day or just above the highs of
the day depending on our trade.
Summary
of what we have discussed thus far.
You should always use Charts and Fibonacci together
when you trade. Sometimes the charts will work better
than the Fibonacci numbers, and vice-versa. You will
need to identify which is working during the trading
session and use that information to your advantage.
Combined, these two important methods should allow you
to identify support and resistance levels in any stock.
Your
Turn. Try the following example.
Try to do it in the chart below for NVDA. Note the
high of the day was 83.9 and the low was 81.3 at the
time this chart was made.
Identify 1: Support and resistance
levels using the chart.
Identify 2: Support and resistance
levels using the Fibonacci Calculator.
Scroll to the bottom of this page for answers
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| The Answer is:
Chart support = 82.5
Chart resistance = 83.5
Fibonacci Support = 80.71
Fibonacci Resistance = 84.39
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