Fibonacci Retracement: A Technical Stock Tool To Predict Market Direction

by The Smarter Wallet on April 13, 2009

It seems pretty straightforward to invest in the stock market: you simply open a brokerage account, then choose the stocks, mutual funds or other investments you’re willing to put your money in. But there are so many ways to try to make money in the market. How do you do it?

As a long time investor, I’ve employed many strategies, but I now stick to more “conservative” programs given my age, risk profile and financial goals. You may decide to do something different, but what’s important is that if you’re going to invest, you should try to understand and know what you are doing before you put your money on the line. Without a clear and true strategy (such as fundamental investing approaches or technical analysis rules), you’ll only be risking the loss of your investment funds.

A Fibonacci Retracement Technical Tool To Predict Stock Market Direction

So how about a quick lesson on one of those interesting technical analysis strategies that stock traders use? Even if you don’t intend to use it, you’ll probably still find this stock charting strategy highly interesting, especially if you like studying mathematical and graphical patterns.

So here’s our question of the day: what is the Fibonacci rule and what are Fibonacci trends?

The Fibonacci rule helps us see some patterns in stock charts and graphs (yes, it may sound hokey, but it’s actually a popular technique traders use if they subscribe to the tenets of technical analysis). Once patterns are seen, many experienced traders are able to identify potential trends in the market and extrapolate future market behavior.

If you’re curious about how one expert trader and technical analyst predicts the future (based on probabilities of course, as nothing is guaranteed with the market), then check out the following video that shows us how to interpret recent stock market events and trends using the Fibonacci rule.

Click on this link or the image below to watch the video.

Fibonacci retracement, technical stock tool

Based on this video, our current market environment is expected to develop a trading range — that is, indicators are not establishing a clear direction for the market in the near future. If you’re a market timer, then you may want to stay in the sidelines to watch how trends continue to develop. Of course, if you’re a long term investor, you may want to just sit tight, unless you’re planning to start buying more stocks. If so, then there may be a better time down the road when the market is expected to retest previous lows (Dow mid 6,000’s) or at least, move down to the DJIA 7,000 level.

Investment and Trading Tools

To find out more about the stock trading tool featured in this article and techniques behind the market predictions we just discussed, check out this INO Market Club charting tool. You can also subscribe to INO’s free services and tools: you can receive trend analysis reports on your stocks or view investing and trading videos at INO TV Free. These are tools and resources that are available at no cost, which can provide you some ideas and insights about trading, investing and the stock market.

Here are a few more related links that showcase investment videos using the Market Club charting tool:

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{ 1 comment… read it below or add one }

1 Jenny May 12, 2009 at 8:13 am

great post.

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