Page 222 - THE MARKET WHISPERER

218 PART 7 - Indicators: The Trader’s Compass
worth little more than fortune-telling in a coffee cup. So, I have no choice
but to give Fibonacci waves their due respect. Here are two examples:
Example of Price Correction for Bank of America, BAC

Bank of America stock is dropping during the day’s trading from point
[1] to point [2]. The distance between the two points is 100% of the drop.
How far will the stock correct upwards? It corrects precisely up to the
Fibonacci point indicating 61.8% [3] of the low. Is this a coincidence? No.
The greater the number of people believing in the method, the easier it
will be for the prophecy to self-fulfill.
Additional Application: Setting Targets Using Fibonacci Extensions
When a stock price breaks resistance and rises to a new high, some traders
plan the breakout target price according to the Fibonacci principle. In such
a case, the high prior to the breakout up to the line of resistance is 100%,
and the price target should the stock break out is 131.2% or 161.8%. For
example, if the stock rose one dollar and stopped at the line of resistance,
the breakout target will be 31 or 62 cents. This is called a Fibonacci
extension, rather than a Fibonacci retracement.