Fibonacci Retracement Tool

Fibonacci Retracement Tool

Fibonacci retracement is a tool used in technical analysis in stock market. Fibonacci retracement levels are plotted horizontally on a chart to indicate possible support and resistance levels. Each level is shown as a pecentage. The Fibonacci retracement main levels are 23.6%, 38.2%, 61.8%. This has been observed numerously, whenever a stock moves either upwards or downwards sharply, it generally tends to retrace back before its next big move.

For example – you might have seen a stock does go for a rally up from Rs.80 to Rs.150, then it is likely to retrace back to probably Rs.115, before it can move Rs.180. The percentage 23.6%, 38.2%, 61.8% shows it’s level of retracement.

To put it differently these retracement levels provide a good opportunity for the traders to enter new positions in the direction of the trend. The major Fibonacci ratios i.e 61.8%, 38.2%, and 23.6% helps the trader to identify the possible extent of the retracement. You can use these levels to position youself for trade in stock market.

How to Place Fibonacci Retracement Levels on chart?

This tool is available in most of the technical analysis software. After selecting the Fibonacci retracement tool from the charts tool, you have to click on lowest candle on chart, and without un-clicking drag the line till the peak point. The Fibonacci retracements levels starts getting plotted on the chart.

After you finish selecting both the low and the peak fibonacci retracements levels are drawn. It is useful for swing traders & short term investors.

Suppose you wanted to buy a particular stock, however due to sudden run up in the stock you missed the opportunity. In such circumstance you can wait for a retracement in the stock. Fibonacci retracement levels such as 50%, 61.8%, 38.2%, and 23.6% even 0% act as a potential level upto which a stock can correct. Once you identified the levels you can opt for the trade and make a entry.

Read More on Fibonacci levels

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