The next ‘target’ of this blog is Fibonacci targets!
Last week we discussed the magic of the Fibonacci retracements (entries).
This time around the focus is on profitable exits… Let’s start with the basics.
Fibonacci Targets Basics
Fibonacci targets are projected spots on the chart where traders can exit for a profit; whereas Fibonacci retracement levels are entry spots that are potential bounce spots for trend continuation.
I myself add the Fibonacci targets to my Fibonacci retracement and entry tool. This saves me time because I only need to use 1 tool for both ENTRIES and EXITS. I highly prefer this method!
I like it more than separating targets and retracements (many traders do it but not me). They use the Fibonacci extension tool for calculating targets and the retracement tool for pullbacks. Obviously the target and retracement tools are separate.
If you are interested in using the Fibonacci TOOL for both retracements AND targets then you do that by changing the levels in the tool itself. Check out this video for more information on how to do that.
Fibonacci Targets: the Main Targets
The main targets are ALWAYS the -0.272 and the -0.618 Fibonacci levels. Be aware that these levels are unique and very powerful! The market respects these levels a lot. What I mean is that price will often continue to these targets and then switch gears and reverse only after hitting these levels. Quite remarkable! See the screenshots above and below for examples.
Check out the video here below to see more info on Fibonacci targets.
The -0.272 target is the main one for deep Fibonacci retracements like 78.6% and 88.6%. But the other Fibonacci retracement levels could stop at this target for a while before marching further to the next target. The -0.272 target is calculated by taking the square root of the -0.618.
The -0.618 target is the main one for other Fibonacci retracements like 23.6%, 38.2%, 50% and the 61.8% targets. The target is based on the golden ratio. In many cases the -0.618 is the best exit spot UNLESS a bigger trend continuation is expected.
Fibonacci Targets: All Levels
When a trend boom could occur, then price can accelerate towards higher targets as well. Here is the FULL list that I use:
- -1.000 Target
- -1.272 Target
- -1.618 Target
- -2.618 Target
- -4.236 Target
- +138.2 Retracement level (break into opposite direction)
- +161.8 Retracement level (break into opposite direction)
Here are some other targets I don’t use but they are worthwhile as well:
- -0.786 Target
- -2.000 Target
I add the 2 levels above the 1.000 level, which is the invalidation level of the Fibonacci retracement, just in case price breaks my Fibonacci tool boundaries. In these cases price has actually broken below (uptrend) or above (downtrend) the last support or resistance level imagined beforehand. Obviously we don’t expect Fib bottoms or tops to be broken; otherwise the Fibonacci tool should be drawn differently. But sometimes it does occur and then having these levels on the charts helps, because price tends to respect them and sometimes bounces at them.
Keeping the targets flexible and adjusting them for every situation is essential to let winners run when possible and take profits at reasonable distances when a big run is not likely. See more in this post. We will be releasing more posts on this Fibonacci series on how you can complete that in real life!
Before leaving, make sure to read our entire Fibonacci series!