Yesterday was another up day for the broad market…
Let’s hope we continue on this road to recovery.
That being said, I can’t predict what’s going to happen tomorrow.
But I do know that right now, you need to ignore the noise of the headlines, and remember that the big picture is not as bad as the media would like you to think.
Focus on finding high-quality, high-probability setups, like the ones I find and show you how to trade during my Pre-Market Prep.
During that daily webinar, I discuss classic patterns such as the Morning Fader, VWAP hold, Red Candle Theory (RCT), and others.
And one concept I constantly come back to is pivot points.
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Let’s Talk Pivot Points
Pivot points can be incredibly valuable for day traders. They help identify potential support and resistance levels, and more importantly, they give you a framework to anticipate price movement.
One of my favorite ways to identify pivot points is by using Fibonacci retracements….
The term sounds scarier than it is. I’ll explain exactly what they are and how to use them in trading.
What Are Fibonacci Retracements?
They’re based on the Fibonacci sequence, a mathematical pattern found in everything in nature from seashells to sunflowers.
In trading, these Fibonacci ratios help you spot potential turning points in price. The key levels we watch are:
- 23.6%
- 38.2%
- 50%
- 61.8%
- 76.4%
The idea is simple: After a strong move (either up or down), stocks often pull back to one of these levels before resuming the trend.
That pullback area is your pivot point.
Fibonacci Retracements; Forex.com
How To Use Fibonacci Retracements in Trading
- Find a Clear Trend:
Start with a strong move, either a sharp rally or a steep drop. Identify the swing low and swing high of that move. These are your anchors.
Swing High/Low Fibonacci; ICMarkets.com
2. Plot Your Levels:
Use the Fibonacci tool on your charting platform.
For an uptrend, you click at the swing low and drag to the swing high. For a downtrend, it’s the opposite.
3. Watch the Key Levels:
Pay special attention to 38.2%, 50%, and 61.8%. These are your “reaction zones”, or places where stocks might bounce, stall out, or reverse.
4. Look for Confirmation:
Never rely on these levels alone. Pair them with volume spikes, candlestick patterns, or moving averages.
For example, if a stock hits the 61.8% retracement and volume sharply increases with it, that’s a potentially great setup.
Want to plot and use Fibonacci retracements in your trading?
The StocksToTrade platform makes it easy since the Fibonacci tool is built right in.
It also includes pre-built scanners, real-time data, paper trading, and more.
STT is my top pick, and the one I use every single day.
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Avoid These Common Mistakes
Make no mistake…Fibonacci levels aren’t magic.
Here’s where I often see traders go wrong:
Blindly buying at a level:
Just because it’s the 50% retracement doesn’t mean the stock has to bounce. Always wait for confirmation.
Using in a sideways market:
These tools work best in strong, clean trends. They’re not meant for choppy, sideways price action.
Forgetting risk management:
Never assume a level will hold. Always have a stop in place, before you make the trade.
My Final Thoughts…
Fibonacci retracements are a powerful tool when used correctly.
They should never be used in isolation, but when combined with solid chart reading, volume, and other price move confirmations, they can give you a serious edge.
So next time you’re prepping for the day, whether it’s with me on Pre-Market Prep or doing your own scanning, take a few minutes to plot those Fibonacci levels.
You might just find the perfect entry, exit, or risk level that lines up with everything else.
Looking for additional trading mentorship and trade ideas?
Subscribe to my StocksToTrade Advisory service.
You’ll get a monthly newsletter with a list of my top picks, three weekly videos with my watchlists, bonus reports, and more.
Sign up for StocksToTrade Advisory right here!
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade