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Fabonacci Retracement with RSI (2)

Fibonacci retracement is a trading strategy used by forex traders to identify potential entry and exit points based on the Fibonacci sequence and its ratios. Key levels include 23.6%, 38.2%, 50%, and 61.8%, which help traders determine support and resistance levels after significant price movements. While useful, Fibonacci retracement should be combined with other technical indicators for confirmation, as it does not guarantee price reversals at specific levels.

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23 views

Fabonacci Retracement with RSI (2)

Fibonacci retracement is a trading strategy used by forex traders to identify potential entry and exit points based on the Fibonacci sequence and its ratios. Key levels include 23.6%, 38.2%, 50%, and 61.8%, which help traders determine support and resistance levels after significant price movements. While useful, Fibonacci retracement should be combined with other technical indicators for confirmation, as it does not guarantee price reversals at specific levels.

Uploaded by

pegarank
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Fibonacci Retracement

Forex traders use Fibonacci retracements to pinpoint where to place


orders for market entry, taking profits and stop-loss orders.
Fibonacci levels are commonly used in forex trading to identify and
trade off support and resistance levels. After a significant price
movement up or down, the new support and resistance levels are
often at or near these trend lines.

KEY TAKEAWAYS

 The Fibonacci trading strategy uses the "golden ratio" to


determine entry and exit points for trades of all time frames.
 This type of trading is highly contested as it is based on ratios
that don't necessarily correlate to the individual trade.

Sticking to a numerical trading strategy like the Fibonacci


strategy will help to limit or remove emotional bias from trades.

Forex Strategies by Traders Using Fibonacci


Levels
Each trader's strategy will be different, so as an investor you need to
consider how each of the strategies below might fit into your overall
angle on the market. Not every trader uses the options below, and it
is alright if none of them align with your strategy. Strategies that
utilize Fibonacci retracements include the following:

 You can buy near the 38.2 percent retracement level with
a stop-loss order placed a little below the 50 percent level.
 You can buy near the 50 percent level with a stop-loss order
placed a little below the 61.8 percent level.
 When entering a sell position near the top of the large move,
you can use the Fibonacci retracement levels as profit-taking
targets.
 If the market retraces close to one of the Fibonacci levels and
then resumes its prior move, you can use the higher Fibonacci
levels of 161.8 percent and 261.8 percent to identify possible
future support and resistance levels if the market moves
beyond the high/low that was reached prior to the retracement.
Understand Fibonacci Series
Before we dig deeper into the topic of Fibonacci retracement, it’s important
to understand about Fibonacci series.

Fibonacci series is a series of numbers beginning from 0 and arranged in


such a manner that any particular number of the series is simply the
summation of previous two numbers which is shown below-
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377 and so on.

Lets understand the above logic with an example-

377 = 233 + 144


233 = 144 + 89
144 = 89 + 55
89 = 55 +34
55 = 34 + 21
34 = 21 + 13
And it goes on

An interesting property of this Fibonacci series is that if you simply divide


any number in the series by the previous number, the ratio always comes
to 1.618; which is considered as the Golden Ratio also referred to as
‘Phi’.=

Let’s have a closer look at this-

377/233 = 1.618
233/144 = 1.618
144/89 = 1.618
89/55 = 1.618
55/34 = 1.618
34/21 = 1.618
And so on.

Let’s understand some other properties of this ratio and you will find a
unique consistency when a number in the Fibonacci series is divided by its
immediate succeeding number in the series.

For instance:

21/34 = 0.618
34/55 = 0.618
55/89 = 0.618
89/144 = 0.618
144/233 = 0.618

Similar such consistency can be seen when any number in the Fibonacci
series is divided by a number two places higher than the given number.
For example:

13/34 = 0.382
21/55 = 0.382
34/89 = 0.382
55/144 = 0.382
89/233 = 0.382

Similarly when you divide the number by a 3 digit higher number in the
series, the consistency is still maintained and is displayed below:

13/55 = 0.236
21/89 = 0.236
34/144 = 0.236
55/233 = 0.236

So if we express all the above numbers in percentage terms, the value


comes as 23.6%, 38.2%, 61.8% and so on.

How to use Fibonacci Retracement


Levels?
Whenever there is a sharp move in the stock price either upward or
downward, it usually has a high possibility of pullback before continuing in
the direction of the main trend.

For example, suppose a stock moved from Rs 100 to Rs 200, then it may
witness some pullback to 170 before moving to higher to say 250.

Fibonacci analysis has its application in the Stock market and can be
applied when you are expecting a correction after a sharp up move or a
down move.

It helps you identifying major halts or probable bounce back levels after a
decline or advance as the case may be.

These Fibonacci retracement levels create a good opportunity for the


traders to make new positions in the direction of the trend.
The important Fibonacci ratios are 23.6%, 38.2%, 50% and 61.8%
retracement which help traders to identify the probable extent of the
retracement and position himself for the trade accordingly.

Usually, 23.6% retracement is comparatively shallow and is suitable for


flag breakouts or short term pullbacks.

On the other hand, 61.8% retracement is comparatively deeper, which is


considered as golden ratio and is very important level.

However, retracements in the range of 38.2%-50% could be considered as


a moderate correction.

Usually, if the stock bounces from 38.2% retracement, the underlying


strength of the previous move is considered strong. You can try
out fibonacci retracement calculator to have a good idea on the concept.

Fibonacci Retracement Example


This is from lecture right now . I hope you watched the Live Broadcast .
Let’s look at some of the recent examples to gain more clarity about the
concept of Fibonacci retracement.

The above is an example of Reliance Industries where after a steady move


which started from the year 2023 had undergone correction in the month of
Dec 2018.

But it took support exactly from 38.2% retracement and witnessed sharp
bounce in the coming months.

Further technical confirmation from 50 period MA and RSI zone of 45-50


confirmed the bounce.
Next example is of Britannia ltd where presently the stock some bounce
from the convergence of 38.2% retracement and 100 period MA and if the
stock is able to trade and sustain above this week’s low, there could be a
possibility of some pullback in the stock.

Fibonacci Retracement with RSI:


Next is the example of Maruti Suzuki India ltd where Fibonacci retracement
is used in case of a downtrend and it is drawn by joining the highest point
to the lowest point. As you can see, the stock constantly was facing
resistance from 23.6% retracement which is further confirmed by RSI as it
is not able to breach 45-50 level.

Fibonacci Retracement with MACD:

MACD is a trend-following momentum indicator that can help

traders identify the direction of the trend. By combining

Fibonacci retracement with MACD, traders can confirm trades

and improve their accuracy. For example, if the price is at the

50% retracement level, and the MACD is above the signal

line, traders can confirm that the trend is bullish, and enter a

buy position.
Bottomline
Though Fibonacci is one of the useful methods to analyze your chart but it
doesn’t provide an exact entry point rather an estimated area of entry.

Moreover, there is no guarantee that the price will reverse from any
specified Fib level and hence you should combine it with other technical
parameters as a confirmation.

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