Showing posts with label analysis. Show all posts
Showing posts with label analysis. Show all posts

Fibonacci Retracement


Fibonacci numbers were developed by Leonardo Fibonacci and it is simply a series of numbers that when you add the previous two numbers you come up with the next number in the sequence. Here is an example:
1, 2, 3, 5, 8, 13, 21, 34, 55
See how when you add 1 and 2 you get 3? Now add 2 and 3 and you get 5, and so on. So how does this sequence help you as a swing trader?
Well, the relationship between these numbers is what gives us the common Fibonacci retracements pattern in technical analysis.

Fibonacci Retracements Pattern

Stocks will often pull back or retrace a percentage of the previous move before reversing. These Fibonacci retracements often occur at three levels: 38.2%, 50%, and 61.8%. Actually, the 50% level really does not have anything to do with Fibonacci, but traders use this level because of the tendency of stocks to reverse after retracing half of the previous move. Here is an example using a graphic explaining the retracement pattern:
fibonacci graphic
This picture shows a graphical representation of the reversal points for stocks in an uptrend. The pattern is reversed for stocks that are in down trends.
After a stock makes a move to the upside (A), it can then retrace a part of that move (B), before moving on again in the desired direction (C). These retracements or pullbacks are what you as a swing trader want to watch for when initiating long or short positions.
Once the stock begins to pull back (retrace), then you can plot these retracement levels on a chart to look for signs of a reversal. You do not automatically buy the stock just because it is at a common retracement level! Wait, and look for candlestick patterns to develop at the 38.2% area. If you do not see any signs of a reversal, then it may go down to the 50% area. Look for a reversal there. You do not know if or when the stock will reverse at a Fibonacci level! You just mark these areas on a chart and wait for signal to go long or short.

How To Draw A Fib Grid

So how do we identify Fibonacci patterns on a chart. Easy, we draw a Fibonacci grid (fib grid) using swing points. Here is an example:
Fibonacci Chart
Draw the fib grid from the swing point high and the swing point low of a swing. Your charting software should come with this feature. It is a standard option on most charting packages. If not, you can calculate it manually by using this formula:
Calculate the range from the swing point high to the swing point low.
Now multiply the range times a Fibonacci ratio: 38.2% (0.382), 50% (0.500), and 61.8% (0.618).
Finally, subtract that number from the swing point high. That will give you your Fibonacci levels.
This chart shows an actual trade that I made. HS pulled back into the TAZ and then formed a bullish engulfing candle right at the 50% level. That gave me the signal to go long. Nice trade!

Is It Useful?

Well...maybe...sometimes.
Most of the time, when you draw a fib grid on a chart, you will notice that the grid lines up with support and resistance areas that you would see anyway without drawing the lines in! So you really do not need to draw the lines in. Instead, you can just look at a chart and estimate where the levels are.
Look again at the chart above of HS. If you didn't draw the Fibonacci retracement lines in, you can still tell just by looking at the chart that the stock has retraced 50% of the previous move.
If drawing the lines in helps you to better visualize the fib levels, then by all means use it! The choice is up to you.

SWOT Analysis

A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection. The following diagram shows how a SWOT analysis fits into an environmental scan:


SWOT Analysis Framework

Environmental Scan
          /
\          
Internal Analysis   
   External Analysis
/ \      
           / \
Strengths   Weaknesses   
   Opportunities   Threats
|
SWOT Matrix



Strengths
A firm's strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include:
  • patents
  • strong brand names
  • good reputation among customers
  • cost advantages from proprietary know-how
  • exclusive access to high grade natural resources
  • favorable access to distribution networks


Weaknesses
The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:
  • lack of patent protection
  • a weak brand name
  • poor reputation among customers
  • high cost structure
  • lack of access to the best natural resources
  • lack of access to key distribution channels
In some cases, a weakness may be the flip side of a strength. Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered a strength that competitors do not share, it also may be a considered a weakness if the large investment in manufacturing capacity prevents the firm from reacting quickly to changes in the strategic environment.


Opportunities
The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:
  • an unfulfilled customer need
  • arrival of new technologies
  • loosening of regulations
  • removal of international trade barriers


Threats
Changes in the external environmental also may present threats to the firm. Some examples of such threats include:
  • shifts in consumer tastes away from the firm's products
  • emergence of substitute products
  • new regulations
  • increased trade barriers


The SWOT Matrix
A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firm's strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity.
To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:

SWOT / TOWS Matrix

Strengths

Weaknesses

Opportunities
S-O strategiesW-O strategies

Threats
S-T strategiesW-T strategies



  • S-O strategies pursue opportunities that are a good fit to the company's strengths.
  • W-O strategies overcome weaknesses to pursue opportunities.
  • S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.
  • W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats.

    Source: QuickMBA