The core of Technical Analysis is a study of supply and demand in a market. Whether you use upper strategy or lower strategy, there are hundreds of different technical indicators, and some of them are more popular and commonly used. At the end of the day, they are all derived from the analysis of Price, Volume and Time. Even if you are looking at twenty different indicators, they are derived from the same data.
These various indicators can be considered as a three-dimensional vector whose attributes are Price, Volume and Time. Once you realize this, you will understand that Technical Analysis is kind of a self-fulfilling prophecy. If everybody depends on indicators such as Fibonacci Retracements, their actions are going to be same and will eventually lead to the same results. As an example, if everybody using Fibonacci Retracements knows that a stock has a key support level as its value depreciates and reaches 50% retracement, its value is most likely to go up.
The Fibonacci sequence is a set of numbers that starts with a one or a zero, followed by a one, and proceeds based on the rule that each number (called a Fibonacci number) is equal to the sum of the preceding two numbers. A Sanskrit grammarian named Pingala, who lived sometime between the fifth century BC and the second or third century AD, is credited with the first mention of the Fibonacci sequence of numbers. It is named after the Italian mathematician Leonardo Pisano (also known as Fibonacci) who lived from 1170-1250, as it has he who introduced it to the Western civilization.
Fibonacci numbers are of interest to biologists and physicists because they are observed to occur more frequently in nature. For instance, the branching patterns in trees and leaves and the distribution of seeds in a raspberry are based on Fibonacci numbers.
Tradespoon provides charts showing Fibonacci Retracements with each trade pick. Fibonacci retracements show horizontal lines which indicate areas of support or resistance which might precede reversals in price activity. Measuring a rally or decline and dividing the distance by ratios of 23.6%, 38.2%, 50%, 61.8% and 100% create these levels. Look at the time horizon of any technical charted package, and find the lowest point and highest point in the chart. By simply connecting those two dots and dividing the distance by ratios, you can draw your own Fibonacci Retracement.
Our research at Tradespoon has shown that the probability of correctly predicting the position of a stock is highest between 50 to 75 days. This is why we favor charts that have 60 days worth of data.
Every stock that we recommend and on every trade recommended, you will see 60 days’ worth of data plotted by finding the lowest and highest points, and doing Fibonacci Retracements where the key retracements are 32%, 50% and 68%. In Figure 35, you will notice that Las Vegas Sand sold off after their earnings announcement.
Also, you will notice that 50% retracement is shown roughly at 59.5 meaning, 59.5 is a 50% retracement if there is no binary event for the next 10-20 days. In the absence of a binary event, it is most likely that Las Vegas Sand will not breach the overhead resistance at 59.5, meaning it will rebound and revert back to its mean as it approaches 59.5-so, this is your sell signal.