Candlesticks, Fibonacci, and Chart Pattern Trading Tools : a synergistic Strategy to Enhance Profits and Reduce Risk

SUPPORT AND RESISTANCE LINES
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SUPPORT AND RESISTANCE LINES
Fibonacci corrections and extensions are prof itable stand-alone trading
solutions and are even more prof itable when combined with each other.
In this section, we want to add support and resistance lines. If we
believe that chart patterns ref lect investor behavior, it is reasonable
to attach high importance to peak /valley conf igurations, especially
for drawing support and resistance lines.
Support and Resistance Lines Combined with
Fibonacci Extensions
In the previous sections, we discussed approaches to calculating valid
turning points in the markets by combining Fibonacci corrections and
extensions.
In Figure 6.19, we show support and resistance lines in combi-
nation with price extensions on an S&P 500 Index sample. The ex-
tension levels are the same as the ones shown in Figure 6.15.
Figure 6.19
S&P 500 chart from 05–01 to 11–02. Support/resistance lines in
combination with Fibonacci extensions.
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196
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CANDLESTICKS, CHART PATTERNS, AND FIBONACCI TOOLS
Combining support and resistance lines with Fibonacci exten-
sions maps the S&P 500 Index well and provides useful information on
where the market will f ind resistance levels in the future.
Five price targets and clusters show up: f irst, a price target at
938.00 points in the S&P 500 Index; second, a target band between
963.00 and 974.00 points; third, a price band from 1,022.00 to 1,052.00
points; fourth, a price band from 1,085.00 to 1,088.00 points; and f i-
nally, a cluster between 1,158.00 and 1,166.00 points.
Again, we do not know what the S&P 500 Index will do in the
near future and whether some of the precalculated price levels will
ever be reached. We are only saying that if one of these levels is
reached, market pricing might have difficulty moving through it with-
out any correction.