Listen to the Podcast
Hey this is Sasha Evdakov and thanks for joining me here on Let's Talk Stocks. It is February 18th, 2016 Episode Number 72 Applying Fibonacci and Retracements in the Stock Market. This week's episode is all about looking at Fibonacci retracements and just getting the practice behind Fibonacci retracements.
That's what I want to share with you, if you're new to the stock market then you might not want to really do a ton of practice on Fibonacci just yet, until you have the volume down, until you understand how stocks moved, the behavior. You might want to take a look at one of the other courses that I have available and then get into Fibonacci.
Now I did go over the stock market today in the critical charts specifically on what's going on here with the SPDRS and the SPY, along with the market in general. Right now we had a nice pop from these lows over here at the 182 level.
That is in part due to hitting the support level. I talked about this on the last week's rapid recap or Let’s Talk Stock sessions where we could be bouncing at this price level. Really I was looking at the lows from the January 20th and we came right into that.
We came right into that and bounce, right with that OPEC announcement and we were also slightly oversold. So we came in we bounced and part if you look at the volume you can see right here the previous swing lows here on these volume bars, where the biggest amount of trades happened here was 506.6 million on the swing lows we tried to break it on 286, it didn't happen.
We tried to break it on 219, it didn't happen so we're going to take them higher. So we'll see if the market rejects at this price level. You're basically watching this 1930 or the 1950 level as key levels and if it breaks through that you'll see the 2000 level but if it rejects it you could see a comeback to retest this 1810 - 1812 level.
Keep those levels in mind as you're going through the market but if you want to see the more in-depth lesson recap about these stocks then take a look at your critical charts account on the website, which I went in detail today about it the.
In either case today what I want to do is talk about these Fibonacci retracements because stocks, they don't go straight down. They don't go straight down even though sometimes it feels like they go straight down. Like here it seems like we went straight down but really we had a few pops in there.
We even had a pop over here from January 19th 2013 to February 3rd, so we had some pops in there that do happen and you have to be nimble about how these pops, move, react and behave in the market.
Fibonacci is just one of those levels, it’s a guide that you can use, in order to give you some insight on what is a healthy pop, what is a healthy move for that stock, what is a healthy retracement for that stock and use it as a guide, putting it together with volume, putting it together with the price, the action and along with your other support and resistance levels.
You use it all together and if you're new to the market, I'm just going to share some insight with you on some practice behind it but really for the people that have the course you understand how it works and function so this will be a good practice session on How to Apply it to the Current Market Charts and how to use it.
So, you don't need to put full emphasis on Fibonacci levels or Fibonacci retracements, use them as a guide. I would put more emphasis on the volume, I would put more emphasis on the charts, on the way the stock is moving and acting.
Use that as a more important value for making your trading decisions, however you still want to look at Fibonacci to see which move on a retracement or a pullback is healthy because then that allows you to see okay what's real, what's not real, what's normal and what's not normal.
Evaluating stocks with Fibonacci Levels
Let’s just start with Amazon. We look at Amazon and we start evaluating this down move from about December 28th or 29th all the way down and then you notice we had a pop here and if you were short during this time and then you have this pop come in.
You probably were really scared that this pop came in because you don't know, if you don't know what's healthy or what's not then it's probably very scary because well you're in a short position now the stock is popping especially here on that day, which have popped a good 30 points to the upside.
How do we use Fibonacci to calculate this retracement? To see and figure out how big or large this retracement should or could be. Well, the thing about these moves is you have to know and understand swing points, if you don't know swing points, you won't be able to calculate Fibonacci retracements.
First off what is a swing point? A swing point is where stock changes direction. So if you look at these swing points right here and if you don't know swing points then just review it in one of the courses. Right here is a swing point and we can take it down all the way to the previous swing point.
So if you're in this trade right here and you see this stock popping, you basically constantly can keep moving this Fibonacci level as your stock moves down, because as it pops you're looking for what's a healthy retracement or pullback.
Retracement is for when a stock is going down, is going to the upside because you would be short here, so the stocks moving lower so the retracement would be to the upside.
Here when we look at this retracement right here and the stock starts to pop you noticed the key level right here is 61.8, where we have a few support points right there which are predominant and critical support points and you can see that those line up perfectly with that 61.8%.
Getting back to what is healthy and what is normal for a market, well what's normal? Normal is when a stock retraces to 50% and a 50% retracement look at where this hits it hits our Amazon stock 50% at 649.99 almost 650 and there is a swing low right here on November 16th 2015.
So stock can go to a 50 percent, no problem, can it go to 61.8%? Absolutely and then it can continue moving lower, there's nothing wrong for a stock to pop higher and then continue to follow its path, that's how stocks move they don't go straight up nor do they go straight down.
I’m going to show you examples for the upside and the downside. Here let's take a look at as we move in this trade, you can see we had some struggle right here at the 38.2% in Amazon which is the 605 level.
We had those 605 levels, the trouble in January 7th 2016th, we had it on January 8 and played around for a few days and then the stock continued to roll over but here as we got into our retracement, we had the same problems on January 25th, we had the same issue in January 26th.
We had a pullback on January 27, it was ready to reject it but then some news came out about the Amazon Services and then it popped higher. Now how did it pop higher? Well it got to look at that, what a wild level, 61.8 percent which was our key and predominant a resistance level from the past.
Our points it came up to it and rejected it. It rejected, it continued to move lower. So how do I estimate and calculate this move on how far the stock would go? Well if we know and understand ABCD patterns and if you're new to ABCD patterns review some of the other videos or the course.
Here is our A to B, B to C, calculated based on the swing points and C to D, so how do we calculate the C to D leg? The C to D is the money leg after the retracement. Well what you do is you take this 697 or these highs over here and you calculate the distance.
146 is the run to the downside, then we take the swing highs off of our retracement and we go 146. How far did we go? We went 162. Is it always going to be perfect? Absolutely not, similar to how if you look at the support line or the retracements line they don't hit them exactly perfect.
Just like you don't arrive to dinner at exactly six o'clock on the dot with 00 seconds on the seconds handle, instead it might be 601, it might be 558 if you want to be early and on time then you’re going to arrive early.
The same thing here, people are constantly trying to buy the stocks at the cheapest lowest price then sell them at the highest price, or they’re trying to sell it at a highest price and buy them back at the lowest price.
As you drag these things across you notice how these things work out and BOM right there we created our Fibonacci level, worked out and continued. So now what happens here as we draw this to the next level?
You can see that if we draw the Fibonacci level from January 28th all the way to the swing point of February 8th, that downward move in Amazon from that 640 level all the way to 475 level, we had a pop, a pop to the 38.2% level and now it's potentially rejecting.
Now it's not fully rejecting yet, until we continue moving but this is a guide, it shows that there is weakness at that level. Could still get to the 555 price level? Absolutely without a problem, why? Well that also is a swing point from the previous swing point.
Look at the previous swing point low of 547, right there which was our key point, A to B point so the stock can still get to that Wednesday January 20th lows right there. So it can still go back and retrace there but for the time being it's holding at this support line, upward support line even though we're pulling off of that 38.2% level.
So until it breaks this you want to follow the trend and we can still continue moving higher. That's why I said in today's recap you just want to pay close attention that we’re pushing here to the upside we had a strong bounce.
I’m just concerned that the volume here is weak and you have to start putting those things together. So a pullback even here, half way between this point and that high right there to 187, there would be nothing wrong with it.
So can you use this on shorter-term moves? Yes, you can, you can but they're less reliable they're just the guide right so if you're using it on intraday they're less reliable. If you’re using it on the weekly which let me show you GoPro here you can see here on the weekly, we can be a little more precise and more accurate.
Again here with GoPro, in fact we can even do want to the upside on the GoPro. Let me take it out let's see to the three-day. Let’s first do the upside move on GoPro, so let's look at the IPO when it first broke out on this on this stock.
We have a low at around 37 and people were raving about that stock, so what I want to do to calculate this Fibonaci retracement is I'm going to take it from these lows, pop it all the way to the high so the lows here were 38 bucks all the way to about $71 was where we had our first pulled back slightly.
Let's just see if we can zoom in closer a little bit right there and you can see here on this stock, what did we do? We had a pullback to the 23.6% so we didn't have a serious pullback but we had a small pullback from September 12th 2014th, all the way to September 19th.
We had just a small pullback and we continued to power higher. So if we calculate that distance, A to B, 33 points, calculate it from C to D about 33 points and then look what happened, we got to this highs, we had a double top and the stock rolled over.
Then here again we had A to B, B to C and C to D, so those moves is how those stocks move and act and behave let's look at 4 to 5 day here on GoPro and look at the downward action and when I first did this in the members section here early in 2015.
Talking about the lows for GoPro even for me it was a little shocking to project this but here when we look at this GoPro and we look at the Fibonacci levels.
what happened was as you as you look at these are multiple day are retracement what you're doing is you're taking those high that we had in October of 2014 and now you start seeing the stock continued to move higher and the stock moves higher you can see the volume all the way from 2014 to 2016 basically is moving lower and lighter.
It continues to get weaker just look at the moving average of that volume, it continues to get weak. So as the stock powers higher and we draw the Fibonacci retracement levels from these high that we created on September 30 and October 8th, you'll see that stock coming back down to around $38.
So even if you miss that full run there's nothing wrong with that you just now are watching that retracement that stock is powering higher on lighter volume which means it's probably going to pull back.
The first area where we had some trouble was right here at the 38.2%, which right there was at $60, so that $60 level was trouble and the stock tried to sell off and more shorts were getting into that stock.
It didn't really do it, I don't believe. We didn't do it because it continued to move a little bit higher beyond that and nearly got to right around the 50% level. If we zoom out just a little bit, you can see how close even if we line this us up right there.
You can see how close we get to the 50% which was right around $67 on the stock, we didn't even get there and then that stock continues to roll over.
Now if you wanted to play it safe, what you could have done was look at the lows of point B and use this lows of 37, the lows was 37.13 or 37.80. So right around 36.95 if you use those lows to short the stock if you could have got some shares then it would have allowed you to continue to move lower and when you look at the move it was a fairly dramatic move lower.
So to calculate that move, when you calculate the ABCD move notice how the move from here to here you have a 61 point move and if we calculated from the from the C to D, if we points that would put us right around $4.55.
Now we haven't reached that yet but you know that stock at 10 to 12 bucks, just a few months ago or a few weeks ago was still a fairly large move and nearly hitting that projected move. So now it starts becoming either a value play or you could see some more trouble but you have to be aware of how these retracements work.
Hopefully you see that with the Fibonacci levels to the upside and downside, and you can do this with any stock, I could do it on a Tesla stock, if we take it to the upside, if you're looking for more bullish moves from swing lows here to here, so we took it from 2013 all the way to the end of 2013 Tesla coming in from the lows of $37 all the way the highs of 195.
Then that pulled back to 50%, went to 118 to 117 the lows right there was one 116.10 117.93. So 116.10 that stock came back right there and if you look at that chart and you see it, how it comes back, it comes back perfectly right into that pull back and just says it's a healthy pullback.
50% its normal, normal from the breakout which really gets scary especially if you get into Tesla somewhere over here at 156 and now you're underwater at 115, this is what happens, is people sell those positions at the 115 even though they got in at 148, maybe on 157 and that stock is still healthy, it’s just a normal pullback and then they miss out on the run all the way to 261.
It's something to be aware of, it’s a tough thing, and it's about being patient. It's very difficult to do I can tell you that much and you'll be pulling your hair out but that’s just learning and reading the chart and understanding how these pullbacks work.
Then you can do the same thing on the Tesla, if you go into even the downside. So if we're looking on the bearish side, from let's just take September 22, 2015 and go down to October 21st and let's just take a look at that retracement.
You take the swing high, take it and draw it to the swing point and look at how that retracement comes in to right there, we had some serious actions and problems at the 50% and we had one bar that tried to get into 61.8%.
If we look at the daily, you can really start to see it that we just had a few bars that tried to pop higher you know maybe a short-covering, maybe it’s earnings whatever it was but then the stock continued to move lower.
If you look at that A to B, B to C, and C to D pattern you really start to understand how those stocks move and I talked about this as well in the critical charts not long ago just the little while ago that Tesla was setting up for lower prices.
We talked about these swing lows right here breaking, so another short entry point if you were reading, this is the safer short entry point. Of course by now you should probably be out of your short position unless you’re confident and waiting for this next rejection right here that could be happening here soon.
Otherwise they might take it higher but otherwise if you're watching the Fibonacci levels, it could have allowed you to get in slightly sooner. Now again these third levels their little more risky because they can take the stock higher but you can see how that really works and how that plays out.
You can do the same thing in a stock like the Netflix as you look at this retracement and as you look at how the stock is moving right here to this upside or Amazon how it’s moving to the upside or Facebook, notice all these stocks are moving to the upside.
So to me this is a little bit concerning on the market and it's almost like sit on your hands, it's a time to sit on your hands and watch to see if digestion and buyer step in or if we break this and break lower and again if we get back into this SPDRS level right here of 182 or the S&P which would be 1812.
Then if you're watching those levels then you want to pay close attention to those levels but looking at the leaders, you can see they’re retracing here on lighter volume which is somewhat concerning.
Even Tesla right here it's there powering higher on lighter volume, on something you want to be really careful of. So looking at Fibonacci levels you’re watching the way that these things move, act, and behave.
You can do the same thing on a stock like Caterpillar. So let’s just do a few more, let’s just do some of the more popular companies.
Caterpillar right here, great deal of shares. They do a lot of huge equipment really cool fascinating things. So in either case here drawing from a swing point, bringing it down, swing point from November of 2014 to the March 20th 2015 then that stock powers higher just a little bit.
We get to the 38.2% level 8,926 and then we rejected and then we continued moving lower. So that is our A to B, B to C, and C to D, stock continues lower. That's what you're doing, you're checking out these swing point.
Do they work all the time? Do Fibonacci levels work all the time? No, absolutely not. Are they helpful as a guide? Absolutely, they're helpful as a guide.
Here’s one I did on Nike, so here from the swing point of December 23, 2015, we even have a split-adjusted over here. Price on a split-adjusted on December 24th and you'd bring that price down to the lows of the next swing point which was January 15, 2016.
If you're in this trade to the short side or to the long side and you want to see well what's a real retracement or what's a pop or can that stock continued popping higher or if you need to get out maybe because you're underwater and you say I got to get out, which you could do is wait for this retracement.
That retracement’s coming in and you can say okay well it’s coming into the 38.2%, now it probably or make it to the 50% since fifty percent is normal and now put a set 6246, let's see if we get there.
So as we go into it we got there so that could be a place where you get out if you were long because now you said ok now I'm out and I don't want to be in the stock anymore because it's probably heading lower this is just the retracement.
Now in fact we got to about the 61.8% retracement in Nike which you can see you as a predominant point. We had some action on mid-December in that stock. We had a gap right there that kind of creates a little bit more of an empty space.
We got into that level and then the stock continued to move lower. So there's our retracement 50% absolutely, 61.8% yes we got it. We played around at 38.2 but we were able to make it up to 61.8% and then the stock continued to roll over further.
That's what happens in these companies and if you're looking to have your long in the stock and you want to get out and maybe you missed your exit point that's what happens with people is now they're hoping “Oh, please just let me out please just let me out”.
So as the stock continues to power higher those people that are there hoping to get out, now they're getting out. “Now I'm out”, and now they're getting now and that's it that's what continues to move that stock lower.
That's what happens or the short sellers start coming in as well and it pushes that stock lower and that's what happens.
Let's take a look at Goldman Sachs, so here again one more you can see it clearly defined right here on the weekly chart. If we draw it over here which you may first end up doing is drawing from the swing point to the lows here that stock got into the 38.2% and rejected it.
Then it continued to move lower so we had from June 26, 2015 all the way to Friday August 28, 2015. We then tried to pop the next few weeks, got in to September and we rejected higher prices. Then as we continue to move lower my new swing low would be over here.
Now what happens? So as time moves forward I look at the stock we get up to 61.8% right around $200 level, predominant level. We get up into that we reject it nearly perfect right at that level and that stock continues to move lower and you can see that A to B, B to C, and C to D moving perfectly right there.
What happens after the ABCD pattern? Well, you either get a consolidation, you get a pause, you get a pop, and those kinds of things.
Be mindful of what's going on in the markets right now you know for the smaller term my prediction is we could take things higher to this 199 to 200 price level, so we could take things up to here and if we don't do it soon we might actually get a rejection.
Rright now it's actually more of oh wait and see e what happens, be patient, and look at the next few days. We talked about it last week that we had some popping action here which we were already oversold but now we're on the short-term.
We’re slightly overbought so you could see one or two more days of kind of sideways move or not really much happening.
The Dow Jones today really, what do we do? 40 points which was nothing relative to the volatility we've had previously. So for the time being, just wait. If we clear this line you’re going to go higher, if we reject it right now we're not we're not breaking it through we're not rejecting it but we're starting to reject it but it’s rejecting it on light volume.
This is what's concerning me is that, we pushed into it with 135, we rejected it with 102, so that means we could be building more energy to the upside for the small term. The longer-term still stocks are overpriced you know and you need to see more volume more than about three, four or five hundred million on the SPDRS to break this level right here because we had five hundred and six million over here and we had a bounce on August 24th 2013.
Right here we tried to break it with 219 but we just didn't have enough strength so what you want to do is just watch this level, watch these couple of key levels and see where we play in this range. So for the time being you know you might get a little popped the upside but if not you’re going to see it slowly taking these things out and rejecting those prices and then testing this level.
Again we could be in for a little sideways move similar to how WYNN over here. WYNN resorts we had here's the sideways move on the WYNN, you can see right here we've been moving sideways on WYNN and we’re starting to break.
Those of you that had the charts you know this was in there we're watching it and BOM there it is taken off next day moving higher. So this one was basing and consolidating for the last five to six months and now we're at 78 bucks.
If you're in the stock is this line is a stop and I hope you followed those critical charge, this was a nice pop and as it gets into these higher prices you want to take some profits specially as it gets into those 90 levels but that's what I'm talking about.
When we look at these SPDRS what we could do is move sideways or the market itself could move slightly sideways here just like that and ping-ponging building energy one way or the other.
For the time being sit on your hands or hold on to your positions, take profit in the strength be mindful, be nimble and watch how things are moving into these areas. If they press into it higher with more volume it’s going to break it higher.
If it starts rejecting and selling off with higher volume, you're going to sell off further and then as we get lower, if it comes in and volume starts to decrease it’s like taking the foot off the gas pedal then we'll bounce again.
That's what happens, so you're watching these levels to see how far away way we are from one point or the other based on the volume, based on that gas.
Wrap up of the episode
I hope this video was helpful about Fibonacci levels if it was a little over your head or I was a little too much then just take a step back, take a step back focus on the volume, focus on the price, focus on the basics, the fundamentals.
This is more of an advanced thing don't let it overwhelm you, step back and learn the fundamentals, learn the basics then get back into and continue to learn, continue to study, continue to practice. You know from me doing these videos, working on the books, you know in actually helps me to continue to learn to educate myself and you should always continue to learn continue to evolve yourself and continue to practice and get better at it.
What you want to do is do this with 2 to 500 stocks this is what I did with these Fibonacci levels, I would pick a stock, it could be a random stock like right here an Adobe or something like that and then you're watching ok well let me look at the swing point, let me look at how it comes in, we're getting into the 61.8%, were rejecting it.
Then what can happen are we going to reject it? We might, so then you'll see you look and you'll see if your analysis holds true that you could take another one like a Visa, then again you start looking at it ok I start evaluating it can I see the ABCD patterns if you don't see ABCD patterns like this one has been moving fairly well to the upside.
If you don't see retracements pullbacks ABCD patterns, let’s just say on any of these chart, now what you want to do is move on to another chart because you don't see it, if you don't see it, you don't want to force a trade.
On the other hand if you do see it then you want to start evaluating it further and start looking at a further. So if I don't see it then I move on, I might move on to another stock like a SanDisk and then what do i do?
Again I start looking at it evaluating it. I look at the swing points, so what I may draw down, here's a swing point, draw it down. How far did that stock go? Go to the higher swing point. How high did that stock go?
Here's the swing point of the highs and you start looking and playing with this. This one basically got into the 50% and rejected it and if you can't identify the swing points, this is what may happen is you start identifying these points in between and they don't work out really well.
So you need to identify the swing points and the easiest way to do that is look at the weekly or the longer term charts and it's just looking at the directions changes, swing point high, swing point low, coming in right there.
If you take another chart same thing, we go into the daily we take a swing point high, we take a swing point low, we get into it right here 38.2% on Royal Caribbean and that stock rejects it okay so that's what you do.
If you do a smaller retracement I don't know how well this'll work I usually don't do it on these smaller retracements let me see if it works. Normally in theory it's supposed to work but I don't like looking at the intraday with Fibonacci levels, I mean you still get a retracement of 38.2% here and then the stock comes and rolls over if we look at the intraday on Royal Caribbean.
Take a look at the weekly if you're just starting out. Take another stock like ESRX, so this stock for example. Here again, we take swing high go to swing low and we get the retracement.
This one was a super serious downdraft. So could that have an issue on it? It could so then you use the next best guide on next swing point change and then right here you start looking at ok this was our next key predominant support level.
If we zoom in on let's say a three day you can see we come into right here at 61.8% level right at the 88 to 89 level. Again this is just a guide, it’s not to be, you know use the volume more so because look at look at the volume, right here it’s going to tell you if things are going to roll over break.
High-volume means it'll break right there look at that simple straight line, broke on volume, stock continues moving lower and that's it, Fibonacci is just another tool for your toolbox.
Thanks again for joining me. I hope you enjoyed your week so far. If you were short and you didn't take profits and you took some hits this week you know, just clear your mind, trade little later, get some confidence a little bit back.
Remember that the journey is a long journey you don't have to make a million dollars in a day, just continue trading it enjoy the quality of life. It's about quality of life and if you're enjoying it continue doing it even if you make an extra $50 and $100 a day $500 a day, whatever it is you know that most people I believe it's 72 to 79 percent of the world lives on less than $10 per day.
There are a lot of people that live on less than $10 per day. So if you can just simply make an extra $50 a day or $100 a week or five hundred dollars a week or $500 a month, just use that as a quality of life, improve your quality of life, enjoy your life and make the most of it.
Thanks again for joining me. I will have a few more great things coming up for you guys in the next couple of weeks, putting together as we released the new Tuesday videos that’s actually going to compose and create another little mini free course for getting started in trading in the stock market .
I have my story coming out here probably next week just to share with you probably next week on the Thursday session and that way you get some insight on to how I really got into trading, really in detail in depth, the things I've done in the past and the step-by-step process of the things I've traded as well and how I went into swing trading, day trading, options and all these different things.
Keep an eye out for that. Still working on the options chorus definitely got a little bit behind here with because of just the markets the way they have been and focusing on this volatility.
I’d really had to manage my trades, adjust my trades and focus on the trading more this last month so that slowed me down but we do have more than nine or ten hours films already and just continue to film more of it as I can.
I’m just continuing to work on that as i as i make progress in it, so it’s my number one priority of my outside tasks besides trading.
Thanks again enjoy the rest of the week and have a great weekend.
I will see you next time.