You can justify any viewpoint with access to enough information.

Spend a few minutes on Twitter, and you’ll see it at work.

There’s always some source of “news” or “facts” that let even the looniest looney bird say, “See, I am right.”

“Lies, damn lies, and statistics” come to mind.

You can rationalize anything with enough information.

This information overload can be a real trap for your rational abilities.

And that’s especially true for traders using technical analysis.

Throw enough indicators on the screen, and you’ll find the signals you need to spot an “opportunity.”

This chart is a joke, of course. But I’ve seen some real doozies from some of my students.

Psychologists refer to this behavior as Confirmation Bias.

It’s a cognitive bias that influences people to favor, seek out, interpret, and remember information that confirms or supports their prior beliefs or values.

It hinders decision-making and critical thinking because it leads you to give disproportionate weight to evidence that proves your point while disregarding or minimizing evidence that contradicts it.

I’ve worked with a lot of technical indicators over the years.

As you know, VWAP is my go-to. It’s vital to the VWAP hold, high-of-day pattern I’ve relied on for years in my swing trading.

But Fibonacci indicators have also been a reliable tool in my technical indicator toolkit.

These indicators are rooted in the Fibonacci sequence, a series of numbers discovered by the Italian mathematician Leonardo of Pisa, also known as Fibonacci, in the 13th century.

The sequence starts with 0 and 1, and each subsequent number is the sum of the previous two (e.g., 0, 1, 1, 2, 3, 5, 8, 13, 21, and so on).

The real power comes from the mathematical relationships between the numbers.

Technicians express these relationships as ratios. The most important ones for trading are 23.6%, 38.2%, 50%, 61.8%, and 100% by dividing one number in the sequence by the following number or by another number a few places further on.

You can read more about Fibonacci and other technical indicators here.

There are a lot of indicators based on Fibonacci numbers. My favorites are Retracement and Extension levels.

Retracement levels are horizontal lines indicating where support and resistance are likely. They are drawn by identifying a high and low point (e.g., on a stock chart) and then marking the key Fibonacci ratios between them. Traders use these levels to predict where prices might pause or reverse.

Extension levels help to predict how far a price might move after a completed retracement. These are calculated similarly to retracement levels but are used to identify potential profit targets beyond the current range.

Now, Fibonacci indicators take some experience to master. And the last thing I want you to do is simply slap more indicators onto your chart and step into the confirmation bias trap.

But there’s a better way to work this powerful indicator into your process.

Add Oracle to your StocksToTrade platform, and you’ll have access to a combination of indicators I’ve perfected over the years to provide clear support, resistance, entry, exit, and stop-loss levels.

It’s every indicator you need digested into one simple-to-follow screen.

My Oracle Screener has vastly simplified my trading and it will do the same for you.

So, add the Oracle Screener today.

Then check out the video below to see how Oracle incorporates Fibonacci Indicators into a single, powerful tool.

 

 

Until next time,

Tim Bohen

Lead Trainer, StocksToTrade