TradingView

Using the Trend-Based Fib Extension Tool

Education
NYSE:AMC   AMC Entertainment Holdings, Inc
The Fibonacci ratios are widely used among traders to help identify potential areas of reversal in the movement of price action.

The Trend-based Fibonacci Extension tool utilizes three points on a previously identified trend in order to draw the Fib ratios on the chart.

In the chart above, price was rejected twice forming a double top which is a fairly strong reversal pattern. To help identify potential areas of support and resistance we have drawn a Trend-Based Fib Extension.

Using the double top patterns High, Low, and High as the three points for the Trend-Based Fib Extension, the Fibonacci ratios are drawn on the chart.

In this example, you can see that price action respected these levels very well until finding strong support at a potential bottom that corresponds with the 200% extension level.

But, notice the region in the yellow box on this chart. There seems to be no identified areas where the Fibonacci ratios show support or resistance.

While retrospectively we can tell that the area of support found at ~ $12 (141.4%) in mid-November 2017 did not produce a new bull market. At the time there was a potential reversal at that region resulting in higher highs and therefore we could have pulled a NEW Trend-Based Fib Extension as shown below.


As the new Trend-Based Fib Extension is identifying areas of a new uptrend, we see that these ares are shown in a way that they were not in the previously drawn Trend-Based Fib Extension.

However, price was rejected at the 61.8% level and continued downward until the 0% extension level was broken, thus invalidating this Trend-Based Fib Extension.

While the upward price trend did not continue, there was a local high that was made and thus could be utilized to create another Trend-Based Fib Extension to further identify areas of reversal for the continuing downtrend as shown below.


Looking at this newly created Trend-Based Fib Extension, we see that the areas moving down to the 78.6% extension level are very well respected, at which time the price found support, creating a triple bottom reversal pattern.

It is interesting to note that the 78.6% extension on this Trend-Based Fib Extension pull is at $1.82, and the 200% extension level from our first Trend-Based Fib Extension pull was at $1.95, a mere $0.13 difference in price.

This area where the two levels of a Trend-Based Fib Extension or Retracement group together is know as a Fib cluster and indicates areas of strong support or resistance.

With price forming a triple bottom and reversing from this level, is it possible that this is the bottom of this downtrend?

Could a new Trend-Based Fib Extension now be pulled from a new Low/High/Low to identify potential areas of support and resistance?

Give it a try and see what you find!

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Comments

Fibonacci proved that these levels occur in nature and that human beings are attracted to them at a sunconscious level, so it would make sense why they would occur in trading too. However just as with support and resistance many of the levels are often reacted to through sheer coincidence, so I wouldn't pay them too much attention. All you need to profit from the market is a solid understanding of market structure and patience. Nothing more and nothing less.
+13 Reply
@StewySongs totally agree
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@StewySongs, preach
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oafless StewySongs
@StewySongs, 100%
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guydebyl StewySongs
@StewySongs, totally agree..
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exactly
+1 Reply
Agreed, wisely patience
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Still think it was a double top? 🙃
Hearing a lot of propaganda going around saying $50 friday is a good target price. Official stock roster for the count ends Friday. Coincidence? I don’t think so. Look at GME… AMC now has more investors and the very real catalyst of the count to catch the naked shorters in the act.

500 floor. Not 50 top. Target price should have four zeros after it.
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So from further investigation it demonstrates the disparity between reading charts at a very long range and making assumptions of price movements based on historical trends long before current market conditions.

The background to the AMC stock and the unprecedented short interest that is not being made publicly available highlights that this “educational” piece to be somewhat divisive in its findings.

I would urge trading view to inspect this at a daily or hourly time frame using the beginning of the fire sale at the start of the pandemic as the starting point.

In so doing you will see that the momentum and ongoing case AMC board has against naked short selling and the SEC investigation of such. Would put it in a very bullish position.

Try overlaying the S&P chart and you will understand where I’m coming from. The price increases upwards of 5% to the S&P’s 0.1% or so increase. In other words, so long as the market remains bullish it will continue to rise.

Throw into the mix 3million + individual investors and it paints another picture. None of the significant dips correlate to profit taking. Rather, forced shorting of the stock reduces it to an artificially low figure before it skips back up to a bullish moving average.
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Double top you say?

Have you heard of a “cup with handle”?

A double “top” would suggest it has peaked. Usually this would be when a price is at a seasonal or all time high. This isn’t it.

It rose from a huge cup with handle. It then retested this after throwback to cup lip. The lows remained above cup lip. And it set to off to test what you suggest as the first of the double top.

The second top as you would have it is being tested again. A third top?

Not so. It’s going to test the previous high. And it will continue to all time highs.
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