When trading stocks what are the advantages of using Fibonacci Extensions to set profit targets?
What Fibonacci Extension level is most appropriate for setting a profit target, or can it be better to stagger profits at different Fibonacci Extension levels (that is, say take 50% profits at one Fibonacci Extension level and the remaining profits at a higher Fibonacci Extension level?
fibonacci levels (retracements,expansions, arcs) are all arbitrary numbers with no statistical significance. that said thousands of traders world over use, view and depend on fib numbers in their trading ranging from forex, stock commodities etc the point is if it's traded a fibonacci number has been used on it, because of this unanimity on their significance & application the fibonacci's thus act as valid anchors since so many traders are looking at the same levels (self-fulfilling prophecy). the values of the fib numbers are all equally significant i.e the 23.6. 38.2, 50, or 61.8 are statistically all equally likely to occur. you just have to be vigilant as your trade approaches the fib levels.
I have never seen a backtest showing that prices tended to be attracted by / to revert around Fibonacci levels. The fact that many people use them doesn't mean that they can be turned into a profitable system...
I have on the other hand seen many backtests showing that they don't do anything, such as the one described in this article:
At least in this sample of market data, using this particularly specification for swings, we find no evidence that Fibonacci ratios are significant in the market.
Perhaps I have missed something significant, or perhaps I am merely completely wrong in my analysis, but one thing should be clear—the burden of proof should lie on the people offering arcane and complex methodologies, when simpler methods work just as well or better in the marketplace. If Fibonacci ratios are the key to the markets, where are the quantitative tests? Where’s the proof?
