Understanding the concept of Fibonacci retracement

[kayode10]

Fibonacci candle or retracement is a technical analysis tool used in financial markets to identify potential levels of support and resistance for an asset's price movement. This tool is based on the Fibonacci sequence, a series of numbers where each number is the sum of the two preceding ones, and the ratios derived from it.

The Fibonacci retracement levels are derived from dividing the vertical distance between two price points by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%. These ratios represent levels where traders believe that a security's price may experience a reversal or continuation of a trend.

The 23.6% and 38.2% levels are considered relatively shallow retracements, while the 50% and 61.8% levels are considered deeper retracements. The 100% level represents a complete retracement of the prior price move, which means the price has returned to its original level.

Traders use Fibonacci retracement levels to identify potential entry and exit points for a trade. If an asset's price retraces to one of these levels, it may be a signal to buy or sell, depending on the direction of the trend and other technical indicators.

Fibonacci retracement levels can be used in combination with other technical analysis tools, such as trend lines, moving averages, and oscillators, to confirm or contradict signals generated by the retracement levels.

Fibonacci retracement is a widely used tool among technical analysts and traders, and it can be applied to any financial market, including stocks, bonds, commodities, and currencies. However, like any other technical analysis tool, it is not foolproof, and traders should always use it in conjunction with other forms of analysis and risk management techniques.

 

[Min Eduok]

Fibonacci retracement explained simply.​

Is it really complex to Understand the concept of Fibonacci retracement ?


The concept of Fibonacci retracement is not necessarily complex, but it may take some time to fully understand and apply effectively in trading or technical analysis.
Fibonacci retracement is a tool used in technical analysis to identify potential levels of support and resistance in a market trend. It is based on the idea that prices often retrace a predictable portion of a move, after which they may continue in the original direction. These predictable portions are based on the Fibonacci sequence, which is a series of numbers where each number is the sum of the two preceding numbers (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so on).
To apply Fibonacci retracement, traders identify a significant move in the price of an asset, and then use the Fibonacci sequence to calculate potential retracement levels. These levels are typically drawn as horizontal lines on a price chart, and can be used as potential areas of support or resistance.
While the basic concept of Fibonacci retracement is relatively straightforward, there are a few factors that can make it challenging to use effectively. These include:

• Identifying significant moves: Traders need to be able to identify significant moves in the price of an asset in order to use Fibonacci retracement effectively. This can require experience and skill in technical analysis.
• Selecting the right levels: There are multiple levels that can be used for Fibonacci retracement, and traders need to select the levels that are most relevant to the current market conditions.
• Combining with other indicators: Traders often use Fibonacci retracement in combination with other technical indicators, which can make analysis more complex.

Overall, while the concept of Fibonacci retracement may not be overly complex, applying it effectively in trading or technical analysis requires experience, skill, and the ability to integrate it with other tools and strategies.

Explaining further,

As I mentioned earlier, Fibonacci retracement is a tool used in technical analysis to identify potential levels of support and resistance in a market trend. The levels are based on the Fibonacci sequence, which is a series of numbers where each number is the sum of the two preceding numbers (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so on). In the context of technical analysis, the sequence is usually rounded to the nearest whole number, so the levels used are typically 0%, 23.6%, 38.2%, 50%, 61.8%, and 100%.
To apply Fibonacci retracement, traders first identify a significant move in the price of an asset. This move can be in either direction, but is usually a strong upward or downward trend. Once the significant move has been identified, traders draw a line between the starting point and the ending point of the move, and then use the Fibonacci sequence to calculate potential retracement levels.
For example, let's say that a stock has been in a strong uptrend, rising from $50 to $100 over a period of several months. The trader might draw a line between the starting point at $50 and the ending point at $100, and then use Fibonacci retracement to identify potential levels of support if the price were to retrace some of that move. The levels might look something like this:

• 0%: $100 (the ending point of the move)
• 23.6%: $86.40 (23.6% of the distance between $50 and $100)
• 38.2%: $75.80 (38.2% of the distance between $50 and $100)
• 50%: $75.00 (50% of the distance between $50 and $100)
• 61.8%: $64.40 (61.8% of the distance between $50 and $100)
• 100%: $50 (the starting point of the move)

These levels can be drawn as horizontal lines on a price chart, and can be used as potential areas of support if the price were to retrace some of the move. For example, if the price were to pull back to the 38.2% level at $75.80, that might be seen as a potential area of support where traders could look to buy the stock.
Of course, as with any technical analysis tool, there are limitations to Fibonacci retracement. It is not a perfect predictor of price movements, and should be used in conjunction with other indicators and analysis methods. Additionally, the levels used for Fibonacci retracement may not always be relevant in every market situation, so traders need to use their judgment in applying the tool effectively.

 

[marym]

Correct, Fibonacci retracement is a popular technical analysis tool used in financial markets. Traders use it to identify potential levels of support and resistance for an asset's price movement. The key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100% are used to determine these levels. Traders also use these levels to determine potential entry and exit points for trades.
It is important to note that Fibonacci retracement is just one tool among many used in technical analysis, and it should be used in conjunction with other indicators and risk management techniques. No tool can guarantee profitable trades, and traders must be aware of the risks involved in trading.