Okay, before you lash out think for one second: I did not say Fibonacci is useless. 😂
It’s more of a recipe for disappointment to be honest.
Oh wait, there’s also what you call Fibonacci extensions but guess what? I don’t use them as well. 😂
If you’ve been following me ever since I started this trading journey, I like doing things out of the box.
So with that said, I will share to you a Fibonacci Retracement trick that I use that’s specifically for anticipating 52-week highs and All-time highs (or breakout plays from these highs)
I like to call it: Limbo Fibonacci.
How to plot this is actually easy.
So here are the steps:
- Do the art of lazy spotting support and resistance assuming that you read my post regarding this.
- Measure your chosen support and resistance. Make sure it’s at least over 20% and the trade range should be at least more than a month. This range is actually enough regardless of your trading profile (Swing, Momentum, Bounce, etc.)
- Plot your Fibonacci Retracement with your chosen support matching the 100% level (Inferno) and your chosen resistance at the 61.8% level (Limbo)
- Enter at the break of Limbo or within Inferno (78.60% – 100%)
- Take profits at your chosen Fibonacci levels:
- Limbo (61.80%, e.g. if you entered from Inferno and you wanted an early exit)
- Earth (50%)
- Purgatorio (23.60 – 38.20%)
- Paradiso (0.00 – 23.60%)
- Stop loss depends on your risk tolerance but it is usually a couple of points below your chosen entry level.
- The Limbo Fibonacci becomes invalid if the price breaks down the 100% of the Inferno level.
Here’s what it would look like if you plot it and we’ll compare it against a Fibonacci extension plot and decide for yourself which one looks more convincing for you. ✌
Let’s turn back the clock, take a look at $ALLHC for example.
This stock recently broke an All-Time high this year.
Say you wanted to enter when the price breaks the All-Time high. So you would probably plot your Fibonacci Retracement like this:
Now let’s try plotting the Limbo Retracement…
Let’s say the stock that we’re looking at seems to be far away from the All-time High (ATH)
Let’s see what happens after…
On the other hand, the All-time high did break out but you notice it almost reached the Earth level (50%) and almost resisted to that level so probably you should’ve thought about leaving the stock at this point (e.g. cut loss below Limbo or sold near Earth)
Let’s have another example, here we have a chart of $WLCON using the usual way of plotting the Fibonacci (with extensions again of course)
Now let’s see what happens after…
If you want a trend-based Fibonnaci, you might plot and plan it like this (if you’re an Elliot Wave trader you might be fans of using these. Don’t bash me for this, I’m still working on the next blog, lol)
Now let’s use the Limbo Retracement again using the same example. 😂😂😂
Q: Can I use this strategy even if the price is not reaching 52-week highs/all-time highs?
A: Actually you can, but plotting this with existing past prices looks redundant from my perspective.
However, this method can also be useful if you don’t want to be obvious on what Target Prices (TP) you are attempting to reach.
Let me show you what I mean.
If we try to explore the past chart data…
Using Fibonacci isn’t that bad, as long as you know how to follow your trade plan and react accordingly.
Whether you’re using Moving Averages, Elliot Waves, etc. it doesn’t really matter as long as you know where to enter and exit.
And there you have it, I hope you learned something new today!
P.S. Be careful if you ride a stock up to Paradiso, you don’t wanna become like Icarus (unless you’re shorting 😅)
Your Trading Poet,