Technical stock traders use a wide range of chart formations to determine the right time to buy and sell stocks. One commonly used technical indicator is Fibonacci numbers.
What Are Fibonacci Numbers?
Fibonacci, an Italian mathematician from the Middle Ages, created a set of numbers based on a very simple formula. Starting with 0 and 1, each successive Fibonacci number is the sum of the previous two numbers. Therefore, the list of Fibonacci numbers is 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, etc.
The Golden Ratio
As one gets higher in the Fibonacci number sequence, the result of dividing one number by the next number in the sequence gets closer and closer to the “golden ratio” of 0.618:1, or 1.618.
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Important Fibonacci retracement and resistance levels that technical traders watch include 38.2 percent, 50 percent and 61.8 percent.
Possible Fibonacci Support Levels
Technical traders of Alibaba Group Holding Limited BABA 0.17% don’t have much of a trading history to analyze.
After falling from $120 to as low as $85.42 over the past couple of months, could a Fibonacci level provide support for the stock? Shareholders might soon find themselves watching the 38.2 percent retracement level at $74.16 and hoping that is as far as the price will fall.
Shareholders of Tesla Motors Inc TSLA 3.54% may have noticed that the stock’s fall from its all-time high of $291 down to its recent lows of $185 is a drop of about 36.5 percent, a level that is very close to the 38.2 percent Fibonacci retracement level.
If the stock finds support at that level, the downside from this point is extremely limited.
Shareholders of Twitter Inc TWTR 1.84% had a tumultuous 2014. After dipping under $30 in May, Twitter stock rebounded as high as $55.99 in October before falling again to $34.62 in December.
Fibonacci traders likely see this level as an extremely strong support level, as it incredibly represents an exact 38.2 percent pullback.
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