Anyone who is familiar with my work using the Fibonacci ratios will hear me repeat some things over and over and over. One of those things is that many moves tend to terminate at extensions of prior swings if only temporarily. This is when I strongly suggest that traders ratchet up their stops if they are currently in a position. The aforementioned scenario has been the case in Google ($GOOGL) recently (see chart below). After the last buy setup we had in this stock against the 3/8 low, we have met two upside targets and have rallied $73.31. Since we are EXTENDED, (we slightly surpassed the 1.618 extension of the prior swing) this stock is in the position for a deeper downside correction. It doesn’t mean it will definitely happen, but that is a good reason to consider booking some profits and/or really tightening up on stops on the long positions.
There is more information on this chart, however, that leads me to the same conclusion. I see Fibonacci time cycles between 3/31-4/1. Since we were trading UP into this time window, that also suggested, at least, a short term high may unfold. Aside from the timing, there is also price resistance in the way of a .786 retracement back to the Feb high along with a 100 % projection of a prior rally swing. All of the tools I use not only tell me when to get into a trade, but they also tell me when to either EXIT or at least ratchet up stops on current positions. The moral of the story. If whatever you are TRADING is in an extended move….be prepared to protect profits as many move tend to terminate at extensions. $GOOGL is currently in this position!! So are the S&P futures!!!
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