Fibonacci Retracement is an important technical analysis tool used for charting potential Support and Resistance levels on any given chart.
These Fibonacci levels are also extremely important when trying to spot potential reversals within a chart. (2/20)
These Fibonacci levels are based on a numerical sequence created by Leonardo Pisano in the 13th century.
The reason these levels hold weight or are significant, is because so many people use them. (3/20)
The Fibonacci series is a sequence of numbers starting from zero arranged so that the value of any number in the series is the sum of the previous two numbers.
The Fibonacci sequence is as follows:
0 , 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610….Infinity (4/20)
The Fibonacci numbers are the simplest sequence that obeys its particular pattern.
There are many, many ways to define the sequence, all of them setting it apart as being the simplest of the kind. (5/20)
The Fibonacci number sequence describes how things grow, and also how they decay.
The sequence also describes growth within living things, for example the growth of a Nautilus shell.
So the formula for the sequence can be used to predict growth in living things. (6/20)
It is believed that the Fibonacci ratios, i.e. 61.8%, 38.2%, and 23.6%, finds its application in stock charts. Fibonacci analysis can be applied when there is a noticeable up-move or down-move in prices. (7/20)
When it comes to plotting your Fibonacci Retracement lines, you must manually apply them to your charting. (8/20)
To manually plot fib lines, we must take the Retracement tool (Here I am using tradingview interface) and draw the levels starting from the top peak, down to the most bottom wick on our chart as pictured below. (9/20)
Here I am applying fib retracement in Nifty hourly chart.
We can use it in any stock and in any timeframe as per our requirement. (10/20)
By applying our Retracement tool from the top to the bottom, this will plot and show us potential key support areas within our chart.
If we were to start the Retracement from the bottom to the top, this would then plot potential resistance areas instead. (11/20)
The most important Fibonacci numbers that hold the most weight are the 38.2% & 61.8% levels. These levels represent areas that hold the greatest significance in terms of acting as either support or resistance levels. (12/20)
Now how do these levels corelate with Supply & Demand?
Well when plotting Fibonacci, specifically our 38.2% & 61.8% levels, we more often than not will see interaction with those levels creating at least a short term reversal. (13/20)
These reversals create an imbalance between buyers and sellers that results in the creation of Supply & Demand zones.
We can see few interactions below where zones were created off our key Fib levels. (14/20)
Once I see a reversal off a key Fib level, I then go in and manually apply my S&D zones.
It is also very important to cross confirm the levels for higher accuracy.
You can see an example of that below where I marked demand and supply zones manually. (15/20)
✔Using Fibonacci and S&D together is a great way to take high probability trades backed with conviction. (16/20)
✔Entry & Stoploss
Fibonacci retracements can be used to place entry orders, determine stop-loss levels, or set price targets. For example, a trader may see a stock moving higher. After a move up, it retraces to the 61.8% level. Then, it starts to go up again. (17/20)
Since the bounce occurred at a Fibonacci level during an uptrend, the trader decides to buy.
The trader might set a stop loss at the 61.8% level, as a return below that level could indicate that the rally has failed. (18/20)
✔Target/ Exit point –
I always follow next Fibonacci retracement level as my target. (19/20)
♥If you found this thread useful, please RT the first tweet & follow @itsprekshaBaid for more such learnings.🔁 (20/20)
A Thread to learn : Simple Price Action - Swing Trading Strategy. 👇
✨What is range bound market?
When the stock prices generally flow back and forth near the old highs and then fall back to the recent lows.
When we mark such highs and lows, we find a range, and when the price move between that range, it can be termed as range bound. (2/14)
✨What is Range breakout?
When the price breaks the range which we marked earlier, it means now the price is no more trading conjestion area, then it can be termed as range breakout.
After such range breakout, we can see good price movement in that particular direction. (3/14)
It means that the number of outstanding shares is increased by dividing the existing shares originally issued to the present shareholders.
Though there is an increase in the number of shares, the overall market capitalization of the company and the value of each shareholder’s stake remain the same.
Stocks & Options are two ways to put money to work in the market, but they offer sharply different profiles for risk and reward. (2/15)
Stocks offer high-risk, high-reward potential, while options take that a step higher, with the possibility to double or triple your money (or more) at the risk of losing it all, often in the matter of a few days/weeks or months. (3/15)
⛏The hammer candlestick is found at the bottom of a downtrend and signals a potential (bullish) reversal in the market.
⛏The hammer candle has a small body, little to no upper wick, and a long lower wick - resembling a ‘hammer’. (2/13)
🔨Hammer candle can be of any colour – It can be either of Green or Red colour.
🔨The lower shadow should be at least two times the height of the real body. (3/13)
A bullish engulfing pattern appears when a large green candle appears after a small red candle of the previous day. The body (Green candlestick) of which completely cover the body of the previous day’s (Red) candlestick. (2/10)
This pattern signifies a change or a reversal in the ongoing trend of the prices of a particular security. (3/10)