Thread by @stockstix

Fibonacci Retracement, Expansion & Extension.
A thread🧵

Let's understand with some examples and confluences with some indicators.

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@kuttrapali26 @chartmojo @sunilgurjar01 @Stock_Precision

1⃣What is Fibonacci?

Without going in deep, in layman language, fibo numbers are natural numbers which we mostly see in nature like, flower petals, leaves, etc.

The Fib sequence is a set of increasing numbers where each number is equal to the sum of the preceding two numbers.

2⃣Importance of Fibonacci

If any stock is moving either upwards/downwards sharply and we want to know that till what levels it can retrace/take pullback.

So, we use fibo tool to know next possible support & resistance levels.

✅Here in the pic, next possible support levels are marked, if stock moves down.

✅Here in the pic, next possible resistance levels are marked, if stock moves up.

3⃣Fibonacci Retracement

The retracement level forecasts upto which level retracement can happen.

These retracement levels provide a good opportunity for the traders to enter new positions in the trend direction.

✅Example of downtrend👇

Step 1 – Identify the direction of the market: downtrend.

Step 2 – Attach the Fibonacci retracement tool on the top and drag it to the right, all the way to the bottom.

Step 3 – Monitor the three potential resistance levels: 0.236, 0.382, 0.618 & 0.786

✅Example of Uptrend 👇

Step 1 – Identify the direction of the market: uptrend.

Step 2 – Attach the Fibonacci retracement tool on the bottom and drag it to the right, all the way to the top.

Step 3 – Monitor the three potential support levels: 0.236, 0.382, 0.618 & 0.786

4⃣Fibonacci Expansion

This tool helps to pick profit targets when trading trends.

✅How to draw Fib Expansion?

🔸In Bullish trend:

Step 1 – Identify the direction of the market: uptrend.

Step 2 – Attach the Fibonacci extension tool on the bottom (A) & drag it to the right, all the way to the top (B).

Step 3 – Now, drag again back to lows (A) and mark it C.

🔸In Bearish trend:

Step 1 – Identify the direction of the market: downtrend.

Step 2 – Attach the Fibonacci extension tool on the top (A) and drag it to the right, all the way to the bottom (B).

Step 3 – Now, drag again back to highs (A) and mark it C.

5⃣Fibonacci Extension

Fibonacci extensions are a tool that traders can use to establish profit targets or estimate how far a price may travel after a pullback is finished.

Extension levels are also possible areas where the price may reverse.

🔸In Bearish trend:

Attach the Fibonacci extension tool on the top (A) and drag it to the right, all the way to the bottom (B).

Step 3 – Now, drag to highs of pullback (C).

🔸In Bullish trend:

Attach the Fibonacci extension tool on the bottom (A) and drag it to the right, all the way to the top (B).

Step 3 – Now, drag to lows of pullback (C).

6⃣How to use FIBO more reliably?

✅Confluence of two or more Fibo levels:

In the chart below, we can see the price of big trend is retracing at 50% (although it is not considered as a fibo level but it's an important level) and the price of smaller trend is retracing at 78.6%.

✅Confluence of FIBO with Price support:

In the chart below, price took support and retraced at 0.5 fib level and then the uptrend continued.

✅Confluence of FIBO with MA:

In the chart below, price retraced and crossed 0.236 fib level & MA simultaneously.

The uptrend contd. after this crossover.

✅Confluence of FIBO with RSI:

In the chart below, price retraced at 0.618 fib level with +ve RSI div. and the uptrend continued.

✅We can make Fibonacci more reliable with many other indicators such as MACD and even with diff candlestick patterns.

✅For more such content👇

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