Fibonacci Retracement is a TA strategy that is applied to Bollinger Band breakouts. Bollinger Band breakouts normally happens after a period of consolidation. The main purpose a Technical Analyst uses Bollinger Band breakouts as an indicator is to trace speculative movement of a stock. Such stock appears on Technical Analyst's screen such as NextView online real time platform that provides a filtered list of stocks that closed above the Bollinger Band.
With IGB having first BB breakout on 4th of Jan, the closing prices of latest 3 trading days are calculated to determine the Buy In price on next trading day, 5th Jan. Fibonacci Retracement is measured by using the latest 3 days closing price as 0-100% reference, with the latest one closed above BB upper limit. This phenomenon is called a BB breakout.
Fibonacci Retracement analysis suggests that 61.8%, 50% & 38.2% levels of the latest 3 days closing price will act as 3 strong supports for a uptrend stock for the next trading day. Therefore the Buy in price for the following day should be placed at 61.8% i.e.Rm2.136 or higher, while the Cut loss price should be at 38.2% i.e. RM2.114 or higher for a TA investor.
The Selling price depends on TA investor's view on the current trend and stock profile. For this study case, we find that for the next 2 following days, the stock still breaks the Bollinger Band with huge volumes. Therefore the Technical analysts can upgrade their TP to a very high level.
