Fibonacci Retracement is one of the important tools used by traders around the world. It’s a number-theory-based metric helping traders to analyse buy and sell points of stock. The Fibonacci retracement tool plots percentage retracement lines based on the Fibonacci sequence. It's displayed by a trend line between extreme points.

In This Article

·         What is Fibonacci Retracment?

·         How to analyse chart using Fibonacci Retracement?

·         How to use Fibonacci Retracement on Keev?

Category – Trend Trading Strategy

Type – Leading indicator

What is Fibonacci Retracement?

Fibonacci retracements are based on the popular Fibonacci series.  The Fibonacci series is a sequence of numbers that starts from zero and is arranged in such a manner that any number in the series is the total of the previous two numbers. The Fibonacci series is as follows:-

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and so on.

The most popular Fibonacci retracements are 61.8%, 38.2%, and 23.6% which are based on Golden Ratios. Traders apply this Fibonacci ratio to determine retracement levels and predict the extent of correction or pullback.

How to analyse chart using Fibonacci Retracement

When you find that there is a sharp move in the stock price either upward or downward, there are high chances of a pullback before continuing in the main trend direction. Fibonacci retracement can be of help here. It has its application in the stock market and can be applied when you are expecting a correction after a sharp upward or downward move. The important Fibonacci ratios are 23.6%, 38.2%, 50%, and 61.8% retracements. These ratios are plotted on the stock price chart. 

There is no particular formula to calculate Fibonacci retracement. The trader chooses two points on the chart between the highs and lows of a stock price band. Lines of Fibonacci retracement percentages are then plotted on the chart.

For example, if a trader has selected a stock whose price has ranged between Rs 50 and Rs 100. The 23.6% levels will be Rs 88.2 or Rs 100.