Fibonacci Retracement Example.
Recently Santos announced that they had bought a large stake in this little Oil company, so on that alone one would think the company would have to be doing something right......right?
So, we think the stock should be in for some more gains, but we have to find a reasonably safe entry. In this scenario one tool i like to use is the Fibonacci Retracement Indicator. To apply this tool, we start it at the low of the most recent run, and drag it to the high of the most recent run, the tool then applies the retracement levels. The most common retracement level is around the 50% mark, however, with strong moving stocks, the retracements are normally less. The .618% level is an indication that the trend is strong. With that in mind, i placed a buy at the .618% level @ 9.1c and my order was filled on Friday (14th Oct). Had price broken lower, i would have stopped out and looked for another entry around the 50% level, but as you can see, the next day price touched 9c and appears to have found support. Price may hesitate a little as it moves back up through the .786% level, but with the knowledge that price only retraced to .618% in the first place, I'd expect it to move back up to the previous high, and potentially past that level. Should price move through the previous high, then the potential target could be the 1.27% level.
Update: Today price moved up to the .786% level, and as expected, hesitated a little. Stop loss is now moved back up to our entry to protect our capital.
Update: With the entire ASX being hit for six in the past week, its hardly suprising that this trade eventually failed. The good news is that we had moved our stops up to our entry point. So we got out @ 9.1c, with the only loss being the commissions. As planned, i've been watching the 50% level to see if support can be achieved at that level, but it's not looking good at this stage, so there is no entry as yet. This trade is now closed, with a scratch result. (see chart below)
Disclaimer: The above mentioned information is my opinion
only, and NOT to be taken as advice as i am NOT a licensed
advisor. Caveat emptor.