Fibonacci retracements are a popular form of technical analysis used by traders in order to predict future potential prices in the financial markets. If used correctly, Fibonacci retracements and ratios can help traders to identify upcoming support and resistance levels based on past price action. Fibonacci retracements are great for determining where to enter a position, place stop losses, and define profit targets.
Hey, are you facing loss in stock market in recent times? or facing issues with your stocks? Most of the beginner investors of stock market or even experienced investors face loss in stock market. In Most of the cases is due to lack of knowledge about trading analysis like Fibonacci retracements strategy and after losing stocks you might feeling little less motivated or want to quit the stock market.
Before we address how Fibonacci retracement works we need to understand what the Fibonacci ratios are and how they arrive from the Fibonacci sequence.
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What is Fibonacci Sequence?
The Fibonacci sequence is a series of numbers where each numbers is simply the addition of the two numbers preceding it. The sequence goes on indefinitely as follows – ‘0,1,1,2,3,5,8,13,21,34,55,84,144…’ and so on.
They work across all markets including Stocks, Futures, Options, Forex, and Crypto. Fibonacci retracements are great for determining where to enter a position, place stop losses, and define profit targets.
Fibonacci retracements level:
The most popular Fibonacci retracements levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%.
Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracements levels are 23.6%, 38.2%, 61.8%, and 78.6%. While not officially a Fibonacci ratio, 50% is also used.
The indicator is useful because it can be drawn between any two significant price points, such as a high and a low. The indicator will then create the levels between those two points.
Suppose the price of a stock rises $10 and then drops $2.36. In that case, it has retraced 23.6%, which is a Fibonacci number. Fibonacci numbers are found throughout nature. Therefore, many traders believe that these numbers also have relevance in financial markets.
These levels should not be relied on exclusively, so it is dangerous to assume that the price will reverse after hitting a specific Fibonacci retracements level.
How should we use Fibonacci retracements levels?
Think of a situation where you wanted to buy a particular stock, but you have not been able to do so because of a sharp run-up in the stock. The most prudent action to take would be to wait for a retracement in the stock in such a situation. Fibonacci retracement levels such as 61.8%, 38.2%, and 23.6% act as a potential level upto which a stock can correct.
By plotting the Fibonacci retracement levels, the trader can identify these retracement levels, and therefore position himself for an opportunity to enter the trade. However please note like any indicator, use the Fibonacci retracement as a confirmation tool.
I would buy a stock only after it has passed the other checklist items. In other words, my conviction to buy would be higher if the stock has:
- Formed a recognizable candlestick pattern
- The stop loss coincides with the S&R level.
- Volumes are above average.
Along with the above points, if the stop loss also coincides with the Fibonacci retracements level, I know the trade setup is well aligned to all the variables, and hence I would go in for a strong buy. The word ‘strong’ usage indicates the level of conviction in the trade set up. The more confirming factors we use to study the trend and reversal, more robust is the signal. The same logic can also be applied for the short trade.
let’s understand the usage of retracement strategies by using TCS stock chart:
As per Fibonacci retracements Strategy, it takes support at 38.2% that is 3073.88 values but it didn’t falls again, it is going to moving upward. It’s a strong bullish signal.
This analysis is a part of my previous article where I discuss 3 best IT stocks you should buy in 2023. To understand Fibonacci retracements clearly with more example, you can check my article on Adani Stocks.
This is time to implement Fibonacci retracements strategy to get the best profit from the market. Remember, knowledge is nothing without implementation. So implement and analyze market always so that you can maximize your profit from the market. Execution is the first step to success. Investing or trading a practical field so implement right now!
If you have learned a new strategy, don’t forget to share the content with all traders. Investopedia shares a good article on Fibonacci retracements with more theoretical concepts. If you want to learn more, you can check here.
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