How to Use the Fibonacci Tool to Map Out Potential Price Targets

When markets sell off rapidly, I focus on identifying potential structural changes that signal a shift in trend. A key sign is the formation of lower highs and lower lows, alongside the break of a major weekly support level. If support holds, I remain cautious about shorting. However, once price closes below that level and forms a new low, I look for opportunities to trade in the direction of the new trend.

To execute this strategy, I use the Fibonacci tool to map out potential price targets. Drawing Fibonacci retracement levels from the most recent low to the high, I identify key extension levels, specifically the 127% and 162% levels. When price closes below support and forms a lower low, I enter the trade, targeting these Fibonacci extensions. If price reaches the 127% level, I consider taking partial profits. If it extends to the 162% level, I may exit entirely.

Managing risk is critical. I place my stop-loss above the recent high—if price moves back to all-time highs, my trade thesis is invalid, and I exit. This approach ensures I only stay in trades that align with the broader trend shift.

I apply this strategy across major indices such as the S&P 500, Nasdaq, and Dow Jones. When these markets show similar structural shifts, it strengthens my confidence in the setup. If a correction deepens beyond 127%, I reassess and prepare for the next opportunity, whether it be another leg down or a retest of previous support as new resistance.

This simple yet effective approach allows me to capitalise on counter-trend opportunities while keeping risk tightly controlled. By using Fibonacci levels and price structure, I stay disciplined in my entries and exits, maximising potential gains while minimising losses.

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