A question that is common in the trading world. It is typically asked by trading participants of varying skills and proficiency. Usually it is asked because of their interest in potentially being able to forecast market behavior in advance. Sort of like having a Chrystal ball to the market

Well, without further ado, a Fibonacci Price Projection, also known as Fibonacci Price Extension is a mathematical formula that is applied to the price of an instrument utilizing established Fibonacci ratios for the purpose of forecasting a level that price is expected to react to at some point in the future. Phew. That was a mouth full!

In other words, Fibonacci Price Projection is methods by which a trader can determine a price level in the future where price is expected react to. This reaction can be of four types:

1) Stop and reverse: price is expected to reach the projected level before market forces reverse

2) Stop then continue: price is expected to reach the projected level before market forces are reinforced.

3) Continue then retest: price is expected to reach the price level after passing it.

4) Continue through: price level is expected to fail.

There are several types of Fibonacci Price Projections ranging from the simple to the most exotic, but for the purpose of this article and from a practicality point of view, I will only mention the most applicable projections. The most common Fibonacci Price Projections are:

1) Fibonacci Retracement

2) Fibonacci Expansion

3) Fibonacci Extension

4) Fibonacci Alternate (also known as Fibonacci Parallels)

Each of these expansions has its own unique set of Fibonacci ratios and formula. I have already written a detailed article outlining how to correctly calculate and apply each of these formulas entitled Fibonacci Price Projections: Correct Determination and Application so I won't go into that detail in this article, but I will mention a few important points

Each projection type is used for a specific purpose and failure to recognize that purpose will result in less than ideal outcome in your trading activity. So, what is the purpose of each formula? Well, let me tell you.

Fibonacci Retracement is mainly used to identify price support levels after price has been trending for a while. What is a while? Well, that will depend on your time frame and how you define a trend, but the important part is that you would use Fibonacci Retracement when you have a reason to believe that price has been moving in one direction and is expected to reverse direction. Once you make that determination then you can apply Fibonacci Retracement formula to forecast potential limits to that reversing move before price starts to continue its previous heading.

Fibonacci Expansion, Extension and Alternate serve the same purpose and that is to forecast the potential price level that a trend will end at before weakening or reversing.

Thus, when using Fibonacci Price Projections in complement to each other, you are essentially forecasting future support and resistance levels where each gives you a different piece of information. Fibonacci Expansion, Extension and Alternate will tell you how far the market will go when a trend is established, while Fibonacci Retracement will tell you how far the market will retrace before continuing with the previous trend.

There you have it, a simply, but hopefully informative, mini article on what Fibonacci Price Projections are.

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A day trader is someone who buys and sells stocks, options, or other financial instruments in a short time frame-typically within the same trading session-using trading patterns and other types of technical analysis to determine profitable strategies. The goal for this type of stock trader is to generate a consistent return based on successful trading strategies. By nature, the investment strategies used by day traders differentiate them from investors, who usually utilize strategies with much longer time horizons.

Day Trading for Profit

As opposed to another type of short-term stock trader and investors, fundamental analysis isn't used all that much by day traders. Their time frame is simply too short. Instead, day traders analyze trading patterns and other technical indicators to judge where a stock's price is going, and try to capitalize on them. For example, trading patterns and indicators like a "head and shoulders," "flag," "support level," and "resistance level" are used by traders to determine the direction of stock prices. Unlike investors, a day trader may buy and hold their stocks anywhere from just hours, minutes, and, in some cases, even only seconds before selling their shares to capture a profit or realize a loss.

There are also different types of day traders too.

Institutional: These traders typically work for investment firms, meaning they have more resources at their disposal but also means that they aren't entitled to all of their trading profits.
Retail: Self-directed traders that trade with their own capital, and usually have limited resources. Retail traders can operate from anywhere that has access to their accounts.
Proprietary: Prop shop traders trade in groups in a single location with resources provided from their proprietary trading firms. They typically trade out of the firm's account.
Quantitative: Also known as quant trading or blackbox trading, these types of traders rely on algorithms that usually trigger pre-programmed buying and selling points.

Pros and Cons

Day Traders generally pay more in commissions and brokerage fees due to the high trading volume of their strategies. There is also a high level of risk associated with day trading due to its nature of timing the behavior of stock or asset prices. As such, the Securities and Exchange Commission has established what is known as the Pattern Day Trader Rule, which requires any trader who executes four or more same-day trades within five business days to have at least $25,000 of equity in their account. In addition, they are also taxed differently than regular investors, but are eligible for certain deductions as well.

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