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Identify breakout targets with Fibonacci

Nathan BearNathan Bear ·

I was blown away the first time I saw Fibonacci concepts in action. Everyone from friends to mentors recommended I give them a shot. At first, I was a bit skeptical.

Today, Fibonacci extensions identify the specific target levels for my TPS trades. 

Just a few mouse clicks draw the lines on my chart, putting my trading almost on autopilot…just like this recent trade-in ticker symbol CDW.

 

This was a textbook trade from our Weekly Money Multiplier Live Training

 

For someone who isn’t a chartist, the image above can be intimidating. However, with some practice, you can train your eyes to spot the ideal setup. 

Don’t worry, you don’t have to be a math whiz to figure this stuff out. In fact, I’m going to lay it all out for you— a simple way to use Fibonacci extensions that will help you get better entries and exits on your trades—which should lead to greater profits.

 

The basic TPS setup

 

I want to start by walking you through my TPS setup. This will help you understand how I identify the points to draw my Fibonacci extensions.

My TPS setup works off three simple concepts: trends, patterns, and squeezes.

Newton’s first law of physics states that objects in motion tend to stay in motion unless acted upon by an outside force. This underpins the theory behind stock trends.

Stocks will tend to continue in one direction until they hit resistance. This is especially prevalent when they hit all-time highs. That’s why extensions work extremely well.

Let’s use the CDW trade as an example. You notice how the stock works its way consistently over time higher in price. This tells me that there is a clear bullish trend in the stock.

 

CDW 130-minute chart

 

Next, I want to point out the pattern on the chart. I saw a consolidation triangle forming before my entry. This puts the odds further on my side that I’ll see an explosive move.

Last, I look for a price squeeze. Price squeezes happen when the Bollinger Bands move inside the Keltner Channel. It lets me know the stock is winding up to make a push.

Now I want to describe how I draw my Fibonacci extensions.

 

Fibonacci extensions

 

First, Fibonacci extensions work off of Fibonacci numbers. These are mathematical proportions identified by Leonardo Bonnaci in 1202. He discovers how these relationships exist in nature in everything from flower petals to art.

Traders realized these numbers showed up on stock charts. They look at two primary methods: retracements and extensions. Both work to identify levels of support or resistance.

To find my price targets, I use Fibonacci extensions. Let’s start with a long bullish trade.

First, I find the highest wick of a candlestick that makes up the pattern. That gives me the anchor point for the swing high. It’s ok if you have several at the same price – they all work.

Next, I find the lowest wick of a swing point that makes up the pattern. In a series of higher lows, you want to find the first one.

These swing points give me the distance from which I want to calculate the extension.

Now that I have those points I want to calculate 27.2% beyond the swing high point. Most platforms will have tools to calculate this automatically. I find it easiest to use the Fibonacci retracement tool and then adding in a level for 127.2%.

Here’s what it looks like from my TD Ameritrade account.

 

CDW 130-minute chart

 

Yes, I do know that the best swing point is slightly lower at around 132.18 from a few days earlier. However, I like to work with the more recent swing, in this case, to give myself a little cushion.

I want you to focus in on how the extensions worked as resistance targets. The 127.2% came in right near the close of a powerful daily candle that finished near the highs. Then, you can see the stock powered higher to the 161.8% extension where it found it’s final resistance.

Sometimes I will take my entire position off at the 127.2% extension. Others, I will take half off. It all depends on the strength of the move and the general feel for the market.

You can see these mathematical patterns work across all sorts of different charts. It’s one of the neatest things I’ve come across.

I love the awe that comes to members of Weekly Money Multiplier when they see these tools in action. There are tons of videos and content I’ve created to help you learn how to apply these to your trading.

So come join me at Weekly Money Multiplier. I can make you a profitable trader today.

Click here to join Weekly Money Multiplier.

 

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