Fibonacci Retracements Unravelling the Power in Stock Markets

  1. Technical Analysis
    1. How Technical Analysis Can Help You Make Informed Decisions in Mastering Stock Trading
    2. Technical Analysis Setting Realistic Expectations
    3. Introduction to Technical Analysis and Assumptions
    4. Technical analysis for Profitable Trades Analyzing Open, High, Low, and Close
    5. Candlestick Charts How Line and Bar chart Enhance Market Analysis
    6. Japanese Candlesticks History, Anatomy From Ancient Japan to Global Trading Phenomenon
    7. Time Frames in Technical Analysis Unlocking the Power of Choosing the Right Interval for Successful Trading strategy
    8. Candlestick Patterns How to Identify and Interpret Trading Signals
    9. Marubozu and Bullish Marubozu Understanding What is Essential Single Candlestick Patterns for Traders
    10. Marubozu Candlestick Setting Stop Loss The Ultimate Guide to Trading Patterns
    11. Spinning Top Candlestick Navigating Downtrends A Trader’s Guide to Identifying Reversal Signals
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    13. Paper umbrella and hammer candlestick pattern Unlock Profitable Trades
    14. Hanging man candlestick pattern Profitable share market trading Strategies
    15. Shooting Star Candlestick Pattern Boost Your Trading Success Guide
    16. Engulfing Patterns and Bullish Engulfing Signals Unlock Trading Opportunities
    17. Bearish Engulfing and Doji for Trading Success Profitable Strategies with Candlestick Patterns
    18. Multiple Candlestick Patterns Insights and Strategies Boost Your Trading
    19. Bullish Harami Candlestick Pattern for Trend Reversal Strategies
    20. Shorting Guide using the Bearish Harami Pattern Trade Reversals with Confidence
    21. Morning Star Candlestick Pattern and Gap Analysis To Maximise Your Profits
    22. Evening Star Candlestick Pattern Learn How to Identify and Trade to Boost Your Trading Success
    23. Support and Resistance Basics A Comprehensive Guide to Setting Targets and Navigate the Markets with Confidence
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    25. Support and Resistance Advanced Trading Strategy Analysing Reliability and Optimisation
    26. Volume Trends How to Leverage for Successful Trading Strategy
    27. Volume Analysis A Key Checklist for Successful Stock Trading
    28. Moving Averages A Comprehensive Guide for Trend Analysis in Stock Trading
    29. How to Use Moving Averages for Profitable Trading Strategy and Potential Opportunities
    30. Moving Average Crossover Boost Your Trading Success with A Reliable Strategy
    31. Technical indicators How to Use Technical Tools for Better Decision-Making Unlocking the Power of Trading
    32. Relative Strength Index RSI Analysing Overbought and Oversold Signals to Boost Your Trading Strategy
    33. MACD How to Interpret and Utilize Moving Average Convergence and Divergence for Profitable Trading
    34. Bollinger Bands The Power of Indicators in Trading and checklist
    35. Fibonacci Retracements Unravelling the Power in Stock Markets
    36. Mastering Fibonacci Retracement A Step-by-Step Guide for Effective Trading
    37. Dow Theory Decoding Unveiling the Principles of Technical Analysis
    38. Dow Theory Patterns Unlocking Trading Opportunities with Double and Triple Formations
    39. Trading Range Explained chart indicator example strategy Profit from Market Ranges
    40. Flag Pattern and Range Breakout How to Capitalise Trading Beyond Boundaries
    41. Risk reward ratio Understanding RRR in Dow Theory
    42. Technical Analysis Tools for Traders Charting Software Guide Enhance Your Trading
    43. How to Select Stocks for Trading Success and Building Your Opportunity Universe
    44. Short Term Trading Unleashing the Power of Scalping Strategies
    45. ADX Indicator and 7 more indicator tools for Trend Strength Analysis
    46. Evening Star Candlestick Pattern Learn How to Identify and Trade to Boost Your Trading Success

Fibonacci retracements are quite fascinating. To comprehend the concept, one must know about the Fibonacci sequence. It is said to have its roots in ancient Indian mathematics from around 200 BC, yet it was an Italian mathematician Leonardo Pisano Bogollo -referred to as Fibonacci by his friends – who uncovered the numbers in the 12th century.

The Fibonacci sequence is a pattern of numbers that begins with zero, followed by the sum of the two preceding numbers.

The Fibonacci sequence is as follows:

0 , 1, 1, 2, 3, 5, 8, 13, 21, 34,  55, 89, 144, 233, 377, 610…

Take note of the following points. 

233 = 144 + 89

144 = 89 + 55

89 = 55 +34

It goes without saying that the Fibonacci series continues on, seemingly, forever. It has many intriguing qualities.

For any number in the series, divide it by the preceding one to find a ratio that is typically 1.618.

For example:

610/377 = 1.618

377/233 = 1.618

233/144 = 1.618

The Golden Ratio, also known by its Greek symbol Phi, is a ratio of 1.618, which can be found throughout nature. Its presence in the structure of the human face and flower petals, as well as animal bodies, fruits, vegetables and rock formations. 

For example:

89/144 = 0.618

144/233 = 0.618

377/610 = 0.618

Keep in mind that 0.618 corresponds to 61.8% when expressed as a percentage.

The same result is seen when dividing any Fibonacci number by the number two places higher in the sequence.

For example:

13/34 = 0.382

21/55 = 0.382

34/89 = 0.382

When 0.382 is expressed in terms of percentage, it is 38.2%

Additionally, when a Fibonacci number is divided by one that is three numbers higher in the sequence, it produces consistency.

For example:

13/55 = 0.236

21/89 = 0.236

34/144 = 0.236

55/233 = 0.236

0.236, when expressed in percentage terms, is 23.6%.

 Relevance to stocks markets

It is thought that Fibonacci ratios, such as 61.8%, 38.2%, and 23.6%, have uses in stock charts. Fibonacci analysis can be used when there is a marked increase or decrease visible in prices. After a steep move either up or down, the stock usually attempts to correct before its next shift. For example, if the stock rises from Rs.50 to Rs.100, there may be a regression back to likely around Rs.70 prior to it reaching Rs.120.

The retracement level forecast is a useful tool for traders in order to identify the potential extent of a correction. Fibonacci ratios, such as 61.8%, 38.2% and 23.6%, can be used by traders so that they are ready to enter new positions in the direction of the trend.