What's Fibonacci Retracements ? (Technical Analysis - Share - Finance)

● Fibonacci Retracements

Generally, retracements are temporary price reversals tha take place within a larger trend. After a small reversal price breaks its previous high.

This happens mostly due to the profit booking or the price correction. The ways to find the retracements levels in advance.

This concept is developed more than 800 years and was developed by Leonardi Fibonacci. As per the "Vedic Mathematics" the very concept of this comes within.

Fibonacci Retracements are ratios used to identify potential reveral levels. For instance our body also grows on the basis of the Fibonaccis series.

The sequence is: 

0+1 =1

1+1 = 2

2+1= 3

3+2= 5

5+3= 8 ...

34+55 =89  

55+89 = 144 

89+ 144 = 233

144 + 222 = 377 and so on.

Then 34 ÷ 55 = 61.81%

55÷89 = 61.79 %

34 ÷ 89 = 38.20% 

34÷144 = 23.61 % and so on.

■ Drawing Fibonacci Retracements

Firstly eatimate a trend line of the share price movement. Then state the top (peak) point and the low (bottom) point.

Bottom point reversals state the chances that from there the prices will rise.

We use the trend from top - bottom = to find uptrend and the trend from down - top = to find downtrend.

Then we have to connect the top and bottom point. Then after this connection, the Fibonacci percentages lines are drawn on 100%, 61.8%, 38.2%, 23.6% [Software does this, don't stress :)].

□ Corrections

Now after this we will wait and see that from where the prices will correct. The correction can come in 23.6, 38.2 or 61.8.

To stipulate, the Fibonacci Retracements levels are used as a good indicator to Exit a Trade.

□ Short and Long strategy

I we did long at the bottomest point, then our 1st target is the point cut by 23.6 on the upward trend where we can exit or we can trail stop loss.

Our 2nd target is 38.2 on the upward trend.

But if we did short sell when the price was going down, but the price started going up, then we will gain loss. Now, in that the 1st 23.6 we will hence get a small correction.

It is in the after correction swing the point where we can trade.

● BEWARE using Fibonacci concept

¤ Never ever mix the reference point.

¤ Never ignore long term trends.

¤ Never rely standalone on Fibonacci alone.

¤ Never ever use Fibonacci over short intervals ( one must take at least 3 to 4 months).

Thank you

These are from the references out of mine self made notes. Sorry for not representing pictorially.

Aditya Pokhrel

MBA,MA Economics, MPA