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Tagged: Fibonacci retracement
Fibonacci retracement is a technical tool which is created by using two extreme points (usually major top and major bottom) on a stock chart and dividing the vertical distance by the Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, 100%. Then the horizontal lines are drawn at these levels to identify possible support and resistance.
Fibonacci retracement is one of the indicators which identifies the supply and resistance zone using fibonacci ratios. These indicators enhance the prediction of technical analysis.
usually the major top and major bottom (highest and lowest price) are marked at first. Then the fibonacci ratios or known as retracement points 23.6%, 38.2%,50%,61.8%,76.4% are drawn in horizontal lines.
As the price crosses each level next level is considered as resistance zone until the trend reverses and the previous level becomes support zone.
Fibonacci retracement is a term used in technical analysis that refers to area of support and resistance. It is 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.
Once we establish a high and low price pattern on the chart and low is 0% and 100% and in between areas are plotted as 23.6%, 38.2%, 50%, 62% and then the other points are traced as horizontal lines. When there is a trend and price is moving upwards then it breaks resistance and a support is formed and again it breaks a resistance and a support is formed until there is trend reversal where support and resistance forms.
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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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