FIBONACHI RETRACEMENT

What Does Fibonacci Retracement Mean?

A term used in technical analysis that refers to the likelihood that a financial asset's price will retrace a
large portion of an original move and find support or resistance at the key Fibonacci levels before it
continues in the original direction. These levels are created by drawing a trendline between two extreme
points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%,
61.8%,78.6% and 100%.

Fibonacci retracement is a very popular tool used by many technical traders to help identify strategic
places for transactions to be placed, target prices or stop losses.

Fibonacci is also used to calculate the retracement of a swing.

Fibonachi is calculated in all time frames.

As you can see above,a chart showing a retracement of a swing.Can u guess which swing?
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WHY IS FIBONACCHI SO IMPORTANT?

1- ENTRY POINT

2- CUTT LOSS POINT

3- Support point

4- Resistance point

When u calculated a fibonachi a few things you have to do,

1- Identify your high point

2- Identify your low point

3- Identify your swing current and previous.

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As we have noticed, there are some A, B, C, D points on the chart. They represent the highest spikes of the price
move or simply highest price swings. To apply Fibonacci we will always look for those points.

How about a small assignment...?

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This is how it should be defined:-

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Fibonacci Great Advantages

1. Fibonacci defines entry level

Take a look how the Fibonacci tool was applied on the chart. (From point A, dragging all the way to point B. Done!)
The trading platform will automatically calculate Fibonacci levels for you and draw lines of retracement and
extension levels. If you need to do calculations manually, read How to calculate Fibonacci levels.
 • Fibonachi reversal points normally occurs at 50% and sometimes at 61.8%,

So if you are long, entry at 50% level your take profit point is at the 61.8% level.

• Always watch at 78.6% check for divergence.

• During a strong trend normally it will penetrate all its levels.

• Referring to the chart below,during an uptrend retracement ,normally for intraday at 5m chart
lower levels to park your buy limit..

• In chart below, If its penetrates the low level (0% fibo),there is where your stop loss position
should be.

• price tends to choose different levels to take U-turn from: it can hit 0.382 and go straight back,
sometimes it gets to 0.500,and at times even pierces deep to the 0.618 level. But still, if the price
choose to respect Fibonacci rules it'll stop at one of those levels and makes its nice U-turn; and
Fibonacci traders will already be waiting for this opportunity to enter the trade.

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2. Fibonacci Defines Stop Loss Levels

A trader can use Fibonacci numbers to set stop loss orders.

In our example, placing buy order at C point and keeping our protective stop slightly below A-swing point gives us
security that if the price violates to rise and continues to drop down further, then after it passes it's previous A low
point, it will create a strong signal of a upcoming trend reverse. In this case we simply cut our losses short.

Setting stops using Fibonacci method takes emotions out of the trade by giving a pre-defined exit points.

3. Fibonacci Defines Position Size

When plotted on the chart, Fibonacci tool automatically shows predicted price extension. This feature
can be used to determine risk that trader is ready to take in particular trade. Because we also know
where to set the stop loss, we can easily calculate risk/reward ratio. In other words, it will be our money
management approach. It is considered wise to enter only those trades that promise a 1:3 risk/reward
ratio.

For example, the trade is worth entering, when you have 20 points of possible losses (in the case of
unprofitable trade when a stop loss order will be hit), and 60 or more points of potential wins in the case
when trade will turn winning.
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4. Fibonacci Defines Profit taking levels — sets objectives

Fibonacci extension levels — 0.618, 1.000 and 1.618 — are used to set profit goals. So, what trader
needs to do after placing an order is just to look at extension levels and set a «take profit»/ «close trade»
order. In more than 50% of the cases traders tend to use a 0.618 extension level as the primary target to
lock in profit. If the market is very active, traders can simply reset their positions and ride a rally further
to the next 1.000 or even 1.618 Fibonacci extension point.

• Chart below shows an extension fibonachi level breakout the 100% level to the 161.8% level.

• Once the price breaks an upper price/fibo level (earlier ressistance level) then the below level
price will be the support.

• Referring to the chart below where the 100% level becomes the support after the price
penetrates the 100% level.
 • If you are in a buying position,u can hold your post and make a stop loss at the lower fibo level
from the current level.

• You can also adjust your stop loss everytime the price penetrates its upper level.

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If we return to the moment when price has reached the mark of old B point, we should know that in order to
confirm its uptrend direction (as shown in our case) the price will need to pass old B point (B swing high) and move
up further.
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• Violation to pass B point CAN HAPPEN That's why locking some partial profits at this old B point
will make our trade profitable even if the market decides to turn in the opposite direction.

LOCK YOUR PROFIT!!!

5. Fibonacci method can be double strengthened by applying two or more retracements at once

Although Fibonacci method has its defined rules, many traders worldwide are using their own combined
styles and approaches, not to mention setting different objectives for every particular trade. Because of
that we will be more comfortable with plotting two or more Fibonacci retracements to see where
interests of majority of traders are merging.

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