How To Use Fibonacci Retracement
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| Fibonacci Retracement |
Today I am going to tell you about a very interesting INDICATOR. Whose name is Fibonacci Retracement. Who created it, and when it was created, we will not go into all these things, we will try to understand directly how to use this INDICATOR in trading. Before understanding Fibonacci Retracement, you will have to understand the Fibonacci Series. These Fibonacci series are series of NUMBERS which start from 0 and then the next value is the sum of the previous 2 values.
As you can see, each value is the sum of the previous 2 values. This series is endless. A very interesting thing in this is that if you divide any value by its next number then the RATIO will always be .617, like 21 /34 = .617, if you convert .617 into % term then this value will become 61.8%.
Similarly, when you divide one value by the next value leaving one value in between, then RATIO. 38 will come. Like 13/34 = . 38,. If you convert 38 into % term then it will become 38.2%.
Similarly, when you divide one value by the next value leaving out the middle 2 values, then the ratio. Becomes .23. Like 8 /34 =. You convert 23, .23 into % term and it becomes 23.6%.
You came to know that there are 3 Fibonacci series. 61.8%, 38.2%, 23.6%
Now let us try to understand this series on the chart. You have to keep one thing in mind the stock should be in either a DOWNWARD or UPWARD trend. This will not work in SIDEWAYS or RANGEBOUND markets. Generally, it has been observed that when a stock moves rapidly upwards or downwards, the stock definitely pulls back and FIBONACCI RETRACEMENT works to measure this pullback and to what extent the stock can pullback. 23.6%, 38.2% or 61.8% RETRACEMENT. By placing these RETRACEMENT LEVELS on the charts, a trader can find new trading opportunities for himself, and that too in the direction of the trend.
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| Chart Analysis |
These charts are of Nifty, where the ARROW mark is downwards, the Nifty rally (UPTREND) started and where the ARROW mark is upwards, the Nifty rally ended. Now we applied Fibonacci Retracement TOOL on it and saw how far Nifty can PULLBACK. As you can see in the chart, Nifty has retraced up to 23.6% which comes out to the value of Nifty 14331.
Now let me explain it to you through NUMBERS.
Nifty rally started from 10910
Nifty rally ends at 15431
So a total rally of 15431 – 10910 = 4521 points took place in Nifty.
What we did in this is that we reduced the value of RETRACEMENT from the HIGH as you can see on the chart and I have also tried to show it directly from AAROW, right Nifty took support from 14331 and started its rally again. With Fibonacci Retracement, you can find out where the STOCK/INDEX can take support and start the UPTREND again.
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| Chart Analysis |
Its downtrend started from 194 RS, this stock came up to 72 RS and then went back up, it retraced exactly 38.2% i.e. to 118 RS (arrow mark is shown), and then went back down towards 72 RS. Came.
Friends, one thing is very important to be told here whenever the stock crosses its 61.8% RETRACEMENT (be it UPTREND or DOWNTREND), then there is a possibility that the trend of the stock has now changed. So in this situation, you have to take trades in the direction of the changed trend.
So with these 2 examples, I am trying to explain to you that if a stock is in UPTREND / DOWNTREND and if it pulls back, then where can it take SUPPORT / RESISTANCE.
I hope that through my efforts you have understood something about FIBONACCI RETRACEMENT.
Very soon I will write a blog on a different indicator.