Referring to the chart above as an example, the 78.6% retracement stage stands shield as the ultimate harmonic barrier before an instrument completes a one hundred percent fee swing (higher or lower). This is treasured data because it tells us that a breakout above this stage in an uptrend, or a breakdown in a downtrend, will lengthen all the way to the closing swing excessive or low as a minimum target. Doing the math suggests a free ride for the last 21.6% of the rally or sell-off wave.
This Parabola Pop strategy works very nicely on longer time frames and can even grant early entry to essential breakouts and breakdowns on extensively held issues. As an example, look at Facebook, Inc. (FB) after it peaked at $72.59 in March 2014 and entered a correction that determined help in the mid-$50s. The subsequent jump reached the 78.6% retracement at $68.75 two months later and stalled out, yielding almost three weeks of sideways action.
The stock rallied above harmonic resistance on July 21 (red line) and took off, finishing the ultimate 21.4% of the a hundred percent rate swing in just four sessions. In addition, the fourth day yielded a breakout above the March high, placing off a sparkling set of purchase alerts that gave Fibonacci-focused shareholders many worthwhile options, inclusive of letting it ride, taking partial profits, or risking the stability on the new uptrend.
The Facebook breakout highlights a second benefit of the Parabola Pop strategy. Markets have a tendency to go vertical into these one hundred percent levels, as if a magnet is pulling on rate action. This parabolic tendency can produce amazing outcomes over very quick time periods. Of course, it isn’t always a given due to the fact something can manifest at any time in our modern-day markets, however even a moderate tilt toward the vertical marks a definable facet over the competition.
Final Notes
The thrust from 78.6% into one hundred percent marks a fractal tendency that seems in all time frames, from 15-minute through monthly charts, and can be traded successfully whether or not you are a scalper or market timer. However, intraday preserving periods are extra in all likelihood to face trade-killing whipsaws and shakeouts, while the dimension of the expected rally or sell-off is often too small to e book a reliable profit, especially after the poor affect of transaction costs.
Viewing the trends of the market through the lenses of a Fibonacci grid enables investors to see larger patterns beyond immediate upturns and downturns and to pinpoint prospects for profits that may be just beyond the view of investors who are spooked out by a short-term view of the trends.
If used well, the tools of Fibonacci analysis equip an investor with the confidence and insights needed to withstand shakeouts prompted by drastic downturns and to take advantage of opportunities to profit from approaching vertical shifts. However, doing so requires a willingness to withstand the unnerving volatility that exists within compressed periods of time to see the market movements that a Fibonacci believer anticipates, based on math formulas that have stood the test of time.