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Fibonacci Strategy

The Fibonacci strategy is a technical analysis tool used to identify potential support and resistance levels by applying Fibonacci retracement and extension levels derived from the Fibonacci sequence to swing highs and lows in a price chart.

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9 views10 pages

Fibonacci Strategy

The Fibonacci strategy is a technical analysis tool used to identify potential support and resistance levels by applying Fibonacci retracement and extension levels derived from the Fibonacci sequence to swing highs and lows in a price chart.

Uploaded by

tvinaymohan521
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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The Fibonacci strategy is a popular technical analysis

tool used by traders to identify potential support and


resistance levels, as well as to determine potential price
targets and retracement levels. It is based on the
Fibonacci sequence, a mathematical sequence where
each number is the sum of the two preceding ones (e.g.
0, 1, 1, 2, 3, 5, 8, 13, 21, and so on). Here's an overview of
how the Fibonacci strategy works:

Identify the Trend:


Start by identifying the prevailing trend in the market.
You can use trendlines, moving averages, or other
technical indicators to determine the direction of the
trend.

Locate Swing Highs and Swing Lows:


Locate significant swing highs and swing lows in the
price chart. A swing high is a peak in the price that is
higher than the surrounding peaks, while a swing low is
a trough that is lower than the surrounding troughs.
Apply Fibonacci Retracement Levels:
Draw the Fibonacci retracement levels on the chart.
These levels are horizontal lines that indicate potential
support or resistance areas.

The most common Fibonacci retracement levels are


23.6%, 38.2%, 50%, 61.8%, and 78.6%. These levels are
derived from the Fibonacci sequence and are
considered key areas where price retracements or
pullbacks may find support or resistance.
The Fibonacci retracement tool is typically available on
most charting platforms, allowing you to easily plot
these levels by selecting the swing high and swing low
points.

Interpretation of Fibonacci Levels:


In an uptrend, traders look for buying opportunities near
the Fibonacci retracement levels as potential support
areas. These levels may act as potential entry points for
long positions.

In a downtrend, traders look for selling or shorting


opportunities near the Fibonacci retracement levels as
potential resistance areas. These levels may act as
potential entry points for short positions.
The 50% level is not part of the Fibonacci sequence,
but it is often included as a psychological level and
can act as a strong support or resistance level.

Fibonacci Extensions:
Fibonacci extensions are used to determine potential
price targets when the price breaks out of a range or
retracement.

Common Fibonacci extension levels are 127.2%, 161.8%


and 261.8%. Traders may use these levels to identify
potential areas where the price may reverse or where
they can take profits.

Confirmation and Risk Management:


As with any trading strategy, it's important to use
additional technical indicators, chart patterns, or
fundamental analysis to confirm the signals
generated by Fibonacci levels.

Implement proper risk management techniques,


including setting stop-loss orders to limit potential
losses and considering appropriate position sizing
based on risk-reward ratios.

It's worth noting that the Fibonacci strategy is


subjective to some extent, as different traders
may choose different swing highs and swing lows.
Furthermore, it is advisable to use Fibonacci
retracement levels in conjunction with other
technical analysis tools to increase the probability
of accurate predictions. Regular monitoring and
adjustment of Fibonacci levels as new price data
emerges is also recommended.
UPTREND
0(1271.05)

0.236(1243.23)

0.382(1226.03)

0.5(1212.12)

0.618(1198.21)

0.786(1178.42)

1(1153.20)
0 (2032.072)

0.236 (2012.653)

0.382 (2000.639)

0.5 (1990.930)

0.618 (1981.221)

0.786 (1967.397)

1 (1949.788)
DOWN TREND
1(1153.20)

0.786(1178.42)

0.618(1198.21)

0.5(1212.12)

0.382(1226.03)

0.236(1243.23)

0(1271.05)
1 1956.795)

0.786 (1946.857)

0.618 (1939.055)

0.5 (1933.576)

0.382 (1928.096)

0.236 (1921.316)
THANK YOU

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