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Fibonacci retracement is a term used in technical analysis that refers to area of support and resistance. they are horizontal line that helps us to identify potential reverse of trend.
They are calculated by first locating the high and low of the chart. Then five lines are drawn at 100%,62%,50%38% and 23% (Fibonacci series).
If the stock touches 62%, it is the time to look for reversal. Once it reverse, it has resistance at 100%. If it does not reverse, look for support at 38%.
These retracements can be combined with other indicators and price pattern to create an overall strategy.
The Fibonacci retracement is used to identify a trend reversal. Identify the peaks and low of the chart and draw the lines of 100%, 62%, 50%, 38% and 23%.
After the price touches 100% it is expected to retrace back at 62% then 62% is called the resistance zone and 100% is called the support zone. If does not reverse then it look at 38% as the resistance zone and 62% as the support zone. This can be combined with other indicators and price patterns and form an overall strategy.
The retracement level forecast’ is a technique using which one can identify upto which level retracement can happen. These retracement levels provide a good opportunity for the traders to enter new positions in the direction of the trend. The Fibonacci ratios i.e 61.8%, 38.2%, and 23.6% helps the trader to identify the possible extent of the retracement. The trader can use these levels to position himself for trade
The key Fibonacci retracement points are: 0%, 23.6%, 38.2%, 50%, 100%
2 extreme points are created as 0 and 100. Then the other points are traced in horizontal lines.
When there is a trend reversal at on of these points another trend reversal is expected at the line next to it.
Identify the low and high points of the period and mark the low as 0% and high as 100%
Now draw the horizontal lines at 23.6%, 38.2%, 50%, 61.8%.
As the price crosses each level, the next level is considered as resistance until we see a trend reversal. Once the reversal is seen the previous level is considered as support.
This is used only as an indicator and it has to be used along with a technical analysis.
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