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Nifty 50 - Stocks - The Fibonacci

The document discusses the Fibonacci sequence introduced by Leonardo da Pisa in 1202 and its applications in trading, particularly through Fibonacci retracement levels. It explains how these levels help traders identify potential price reversals and outlines methods for calculating and drawing Fibonacci ratios. The document also details different trading styles, including swing, positional, and intraday trading, and emphasizes the importance of using Fibonacci tools correctly for effective trading strategies.

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sagarika sanjay tiwari
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57 views13 pages

Nifty 50 - Stocks - The Fibonacci

The document discusses the Fibonacci sequence introduced by Leonardo da Pisa in 1202 and its applications in trading, particularly through Fibonacci retracement levels. It explains how these levels help traders identify potential price reversals and outlines methods for calculating and drawing Fibonacci ratios. The document also details different trading styles, including swing, positional, and intraday trading, and emphasizes the importance of using Fibonacci tools correctly for effective trading strategies.

Uploaded by

sagarika sanjay tiwari
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
You are on page 1/ 13

THE

FIBONACCI

© All Rights Reserved 2022


A young italian mathematician named leonardo da pisa-who,
in 1202 published a book liber abaci, meaning ‘book of
calculations’. In the book, leonardo introduced a method of
sum of sequence of whole numbers starting from 0 to 9. The
sequence look like this 0+1=1, 1+1=2, 1+2=3, 2+3=5, 3+5=8,
5+8=13, 8+13=21 and the list go till infinity.

The beauty of this numerical sequence is that many of the


natural things follow fibonacci sequence- petals in flowers, in
fish’s eye, human organs, etc.
As we move ahead, we will learn what this tool is called and
go deep into it.

Fibonacci in trading

This magical sequence turned out to be one of the best thing


in the stock market which help the traders in a trending market
as a tool to find the possible retracement levels for trading
because these levels attracts the stock price and the price
take a move in either direction indicating a trader to take entry
and exit.

What is fibonacci retracement?

The fibonacci retracement means retracing of something to a


previous level. In trading, when a move is already occurred but
it doesn’t occur in a straight way, its a roller coaster ride of the
movement. In simple words, when the price of a stock goes
up, it is its natural phenomenon to come down to a certain
level which allows the trader to enter a pre-existing trend, and
vice-versa.
Fibonacci ratios

Fibonacci ratios depicts the mathematical relationship between


the number sequences and these numbers are crucial for a
trader, these ratios often works as the points at which a market
price reverses to a certain level.

How to calculate fibonacci ratios?

The manual calculation of fibonacci ratios can be done by


dividing any number in the series by the previous number.

Notice the following:


233 = 144 + 89
144 = 89 + 55
89 = 55 +34
Let’s do the division now,
233/144= 1.618
144/89= 1.618
89/55= 1.618

The division of any number with the previous number is always


1.618.

After the development of charting softwares, it is absolutely


waste of time to calculate fibonacci levels manually because
the softwares has made this easy for traders to just mark the
extreme points of the price and the fibonacci will be drawn
automatically.

Golden ratios Fibonacci retracement


The golden ratio of the fibonacci series is 1.618 approximately,
it is also knows as phi. A phi is an irrational number that
means its decimal numbers go on without repetition.

How to draw fibonacci retracement

There is no rocket science in drawing fibonacci tool because


most of the charting platform provide a highs and lows marking
point.

Now, the main problem with most of the traders is that they
don’t know how to draw the fibonacci tool the correct way.
Correct way to draw fibonacci
retracement in uptrend

There is no rocket science in drawing fibonacci tool because


most of the charting platform provide a highs and lows marking
point.

Correct way to draw fibonacci


retracement in down trend

Drawing a fibonacci retracement is done by connecting the


swing high and a swing low point when the price is in
downtrend.
How fibonacci retracement works?

A fibonacci retracement is nothing but a way of catching the


trend on its pullback while on its way to the point where it will
no longer exist. Retracement is a halt for the price to make the
traders aware that the trend is still in your favor with a fair
value of the stock.
Efficiency of fibonacci retracement

A fibonacci retracement is nothing but a way of catching the


trend on its pullback while on its way to the point where it will
no longer exist. Retracement is a halt for the price to make the
traders aware that the trend is still in your favor with a fair
value of the stock.

Using fibonacci retracement for different


trading styles
Swing

Using fibonacci retracement in swing trading is done by


keeping the chart time frame of 1 day, the trade will last for a
week or two giving the trader upto 10% returns in a single
trade.

In swing trading, the strategy is to simply enter when the price


touches the 50% retracement level and have a stop loss at
61.80% retracement level, with the help of fibonacci tool, a
trader is able to have a good risk:reward ratio.
Positional

Using fibonacci retracement in positional trading is done by


keeping the chart time frame of 1 week, the trade will last for a
month or two giving the trader a good amount of profit without
beating the head into the screen.

In positional trading, the strategy is to simply enter when the


price touches the 38.20% retracement level and have a stop
loss at 50% retracement level, with the help of fibonacci tool, a
trader is able to have a good risk:reward ratio.
Intraday

Using fibonacci retracement in intraday trading is done by


keeping the chart time frame of 5 minutes, the trade will last
for 15-20 minutes or sometimes even hours until the market
closes.

In intraday trading, the strategy is to simply enter when the


price touches the 38.20% retracement and have a stop loss at
61.80% retracement level, with the help of fibonacci tool, a
trader is able to have a good risk:reward ratio.
The bottom line

This tool if used correctly can provide important support and


resistance levels to the traders as you can see in the above
figures shown.

No level can be precise everytime you mark the levels but its
better to see opportunities even at the closest point of
fibonacci support and resistance.

I hope until now it is clear to you that what’s fibonacci and how
fibonacci retracement works.

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