Did you hate maths in school? You will be amazed to learn that a mathematical series can help plan a better trade strategy. Technical trading is actually based on mathematical principles. Modern traders use the Fibonacci series you learned in school to plan their trading strategies. How do you know? This is how.
Let's take an in-depth look at the Fibonacci series.
1, 2, 3, 5, 13, 21, 34, 55, 89...
Fibonacci series are a series that consists of integers. Each increasing number in the series is the sum of the two previous numbers. The series numbers are denoted Fn andwhere.
F0= 0 and HTML1= 1
The series is
Fn=Fn-2 + Fn-1
It was named after Leonardo Bigollo Pisano, an Italian mathematician who invent it.
Fibonacci trading strategies are well-known and widely used. You should also learn the concept of Fibonacci trading if you plan to enter the equity market.
How does this sequence play in the context the stock market? Before we go into the section about Fibonacci stock exchange, there are some interesting facts that will help you better understand the subject. Divide any number in a sequence by the preceding number and you get 1.618. This is known as the Golden Ratio. The Golden Ratio is a similar concept. Divide any number of series by the next one to get the result 0.618. This percentage is 61.8 percent.
This isn't all. The result of dividing a number in a sequence by a number two spots higher is approximately 0.382. The fraction is the same for 13/34 and 34/89, respectively. In percentage terms, this is 38.2 percent. Remember to keep an additional relevant percentage in mind. Divide a number by a number three times higher in the series and you get 0.236. The result is 13/55 and 21/89, respectively. In percentage terms, this is 23.6%. You should also note that the Fibonacci series has a constant ratio. Fibonacci ratios typically range from 23.6 to 38.2, 50,61.8 to 100 percent.
What is Fibonacci's role in the stock market? Stock charts use Fibonacci ratios. Fibonacci Retracement is a term that is commonly used in stock chart context. This is done by selecting a peak or a trough, and then dividing the vertical distance with the Fibonacci ratios. Fibonacci Retracement is a technique used to determine support and resistance levels.
These horizontal lines, which are called retracement levels, give you an indication where support or resistance might occur.
Before we get into the details about Fibonacci's role in stocks, let us talk more about support and resistance. The resistance level is the point at which an asset's value will not rise further. The opposite spectrum is support. It's the point where the stock's price falls to a halt and doesn't fall further.
Let's now understand this in the context of Fibonacci. If a trend is rising, the retracement lines will drop from 100 percent to 0 percent. If the trend is falling, the retracement line will rise from 0 to 100 per cent. The horizontal lines are drawn at Fibonacci levels of 38, 50, and 62%. Fibonacci levels of support and resistance are located near or at their retracement levels.
Now, let's discuss impulse and pullback within the context of Fibonacci stock markets.
These are what? Impulses are movements that move in the direction of a trend. Technical analysis calls pullbacks those that are against the trend.
Fibonacci extensions are used to determine when to enter a trade and when to take profits. Extensions measure impulse waves, while retracements measure the pullback in a trend.
Is it possible to find the exact entry point by using Fibonacci Retracement? No. This is something you need to remember when planning your trading strategy. This is an estimate zone and not the exact point. The Fibonacci trading strategy cannot be used as a standalone tool. To get the best out of it, you would need to use other chart patterns.
Because of its unique characteristics, Fibonacci can be used in stock trade. This helps you to understand market volatility and its extent, so you can make the best decision about when to enter or exit the markets. However, Fibonacci results must be confirmed by other charts that you use to plan your moves.