In the stock market today, when trading stocks, most traders will utilize a number of different methods for forecasting how prices or markets will move. Technical analysis is widely used using stock charts to provide past data on a stock volume and prices. There is another method which uses the Fibonacci ratios with charts in order to highlight support and resistance points on stock charts. Most technical analysts will use 5 Fibonacci ratios to find the point s where a stock may reverse in direction. Analysts have seen that if a stock shows a large increase in price going from low to high, and then reverses direction, the stock will find natural support levels that directly correspond with price increase multiplied by each Fibonacci Ratio.
At the point where the stock begins to pull back, you can plot the Fibonacci replacement levels on a chart to look for signs of reversals. To locate the patterns on the chart, draw a Fibonacci grid using the swing points. Draw a grid from the swing point high to the swing point low, and then calculate the range between the swing point high and the swing point low. Once you have the result, you multiply it by one of the Fibonacci ratios that you are interested in. Again, take the result and subtract it from the swing point high. This will give you the Fibonacci levels.
This can be very time consuming and many may get confused when drawing the grid. There is technical analysis software available that can do all this for you. One such tool is “Motive Wave”, which is a stock charting program. It will allow you to easily identify the support and resistance points in a stock pick using Fibonacci methods. This will allow you to get in or out of a stock at the best possible time. It is important to have this edge when you are investing in the stock market. Many traders have given up using Fibonacci levels to trade manually because they have not researched or learned how to do it properly.
With all things, the key to success is to learn how to utilize any tools effectively. They can play a crucial role in your decision making when buying or selling. Many investors and traders have also been quite successful using Fibonacci levels on charts.