Using Fibonacci is my go to technical analysis. Why else would I call this website FibKingTrading? Fibs don't lie and in this case study of ROKU you'll see why I love using Fibonacci.
What do you see when you look at the chart above? How would you start to analyze this chart? In my Fibonacci Learning Center traders learn where to begin their Fibonacci analysis and then what set-up to use. Let's break down ROKU using Fibonacci.
The chart below you see that ROKU fell over $70 from the all time high at $176.55. It pulled all the way back to the $101.59 level? Why? This is the 50% retrace level from the daily chart above. When we are at the 50% level one of my favorite trades is the 50/50 trade. This idea came from someone who would take the NYSE prices each day at the close and find stocks that were near "critical mass" and doing this all via spread sheet. This guy was so old school in his search that I built a scanner to expedite this process. Now I don't use this particular method to search for stocks as often as I use to. The 50/50 trade I have adapted to be able to use on other time frames as well. It's a very popular trade set-up in our community of traders.
So you see above we hovered over the 50% level for sometime. Does it continue to fall? What's the next support? What if it doesn't fail? When do you get long? Check out the chart below. A custom built tool to show a particular reversal candlestick pattern is used to find when there's a good opportunity to get long. This signal was on October 3, 2019. No, ROKU didn't take off immediately but you can see the trend was ultimately higher.
So what's next? We have a support level at $101.59, got an entry long signal at $108.84 (this was the close price). What's the upside target?
Target 1: is the 50% level and is at $137.32
Target 2: is the 61.8% level and is at $146.57
A $36 dollar move for ROKU to target 1. No way that's happening right? From the date of the signal (Oct. 3) to the hitting the first target (Oct. 17) was two weeks of trading. Add another week and 2 trading days to hit target 2. A nice swing trade and in the options world this was a huge win.
How do we know how long to go out on the options? Swing trade for 2 weeks? 1 month? 2 months? This is where Fibonacci Timing comes in to play. What does it tell us? Well on October 4, 2019, here's some projections based on Fibonacci Timing.
This section highlighted red is between October 14 and October 17. Why didn't I use October 8 or October 10 levels? It's Friday, October 4 when I looked to enter, weekend is October 5-6. Monday is October 7. No earnings report, realistically will ROKU make a $30 point jump from Friday to Tuesday? Common sense should tell you no. What about the 10th? Two extra days? Probably not happening. So in this case, monthly option expiration was on October 18 so let's shoot for that time option series and it fits inside our highlighted section. I don't want to buy way OTM option when the stock on October 4th is trading around $108. I'm not going to buy $30 out of the money that expires in two weeks. I do notice though that the $110 and $115 strikes have a lot of open interest. Now gauge your risk and do you want to spend roughly $500 a contract or roughly $300 a contract?
We fast forward to the 17th at the end of the day and look at this chart. The Fibonacci timing lines up on this day and we happen to hit Target 1! That's Fibonacci at work for you!!! What about the options? How much are they worth now? Check out the chart and option chain below.
Paid $500 Worth $2,900
Paid $300 Worth $2,400
How about that risk/reward?
So I didn't take screen shots of the next levels and such but check out the charts below and see how Fibonacci played out. I've labeled the chart 1-12 and there's info regarding each number.
A big shoutout to BlackBoxStocks.com during these trades as well. The most recent trade, the flow on ROKU couldn't be ignored. You can look at some of my most recent tweets and see the ROKU flow I posted all via BlackBoxStocks. If you are interested in a free, one week trial of BlackBoxStocks, follow me on Twitter and DM me. No credit card necessary. You'll get all access next week. If you like it, I can give you a link to join and become a member. You're crazy if you don't take me up on this offer. Again, no credit card, just DM me and I'll get you set up.