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Fibonacci Retracements are ratios used to identify potential reversal levels. These ratios are found in the Fibonacci sequence. The most popular Fibonacci Retracements are 61.8% and 38.2%. Note that 38.2% is often rounded to 38% and 61.8 is rounded to 62%.
These retracements can be combined with other indicators and price patterns to create an overall strategy.
FIBONACCI RETRACEMENT is based on Fibonacci ratios namely 61.8%, 38.2%, 23.6% (which are arrived by his series 0 1 1 2 3 5 8 13 21 34 55 89 144..up to infinity in which the (from the third) number in the series is the sum of two numbers in the left and 61.8% is the % arrived by any number in the series divided by its next right side number in the series EX 13/21 or 55/89etc and 38.2% is the % arrived by any number in the series divided by its second number at the right side in the series EX 21/55 or 55/144 etc and 23.6% is the % arrived by any number in the series divided by the third number at the right side in the series EX 21/89 or 34/144 etc)
FIRST OF ALL draw the horizontal lines regarding the SUPPORT level and RESISTANCE level of the stock by noting SUPPORT as 0% and RESISTANCE as 100%
NOW draw horizontal lines with respect to FIBONACCI RATIO s 23.6% ,38.2%, 61.8%
IN THE BULL TREND
IF THE PRICE MOVES UPWARD AND CROSSES ABOVE 23.6% then it is the SUPPORT and the next RESISTANCE is at 38.2% LEVEL
if the price still moves UP and crosses ABOVE 38.2% level then it is the SUPPORT and the next RESISTANCE IS at 61.8%
IN THE BEAR TREND
IF the price goes down the 61.8% then this is the RESISTANCE and the SUPPORT is at 38.2% level
IF the price goes down the 38.2% then this is the RESISTANCE and the SUPPORT is at 23.6% level
THESE ratio s cannot be used independently without technical analysis
NOTE some people use 50% and 78.6% levels also to find support and resistanceFibonacci retracement uses horizontal lines to indicate support and resistance. These are created by drawing the trend line and dividing them by fibonacci ratios.
Fibonacci retracement 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 levels are horizontal lines that indicate where support and resistance are likely to occur. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. While not officially a Fibonacci ratio, 50% is also used.
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