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Fibonacci Retracement Tool

In Fibonacci retracement tool each level is associated with the percentage. The percentage means how much of a prior move the price retraced. The level is 23.6%, 38.2%, 61.8%, and 78.6%. They create the level between those two points and connect two points as trader views. The origin of the Fibonacci number is good based on a ratio called the Golden ratio. We start a sequence of numbers with zero and one and keep adding two numbers to get a number. The string is as 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, and 987 as continues. The Fibonacci retracements are used to place entry orders to determine stop-loss levels. The levels are the static price that does not change. The static nature of the price level allows for easy identification. They will help traders and investors to anticipate. Fibonacci Retracements are one of the most used tools to identify a rebound in stock prices. The investors make a profit by identifying the end of a phase of falling prices. It helps them to avoid loss by spotting the end of bull runs.

Use

The markets move in a straight line and experience dips known as pullbacks/retracements. The Fibonacci retracements are used by traders to identify the degree to which a market will move against its current trend.

They are used to identify the level of support and resistance. They also used to confirm the suspicion of a market movement. The level of support and resistance that indicates the potential upward/downward market trend. They will indicate to the trader a good time to open/close a position. Fibonacci retracement can reward traders who know when to use them properly.

Cons

Fibonacci retracement requires a high level of understanding and used effectively. So drawing lines on a price chart at Fibonacci percentage has no positive unless traders know what they are looking for.

Fibonacci Retracement Example

The Fibonacci retracement level is all derived from the number string. The sequence goes by dividing one number with the next number yield 0.618. Also, divide a number by the second number to right and the result is 0.382. The ratios except 50% based on mathematical calculations involving number string.

Limitations

The level indicates where the price finds support with no assurances the price will stop there. There are many prices to reverse near one of them quite often. They help identify areas in a stock chart from where the stock’s price could reverse. Here is a stock that has been appreciating it starts falling and expected to rebound once it reaches this range. These retracement zones are identified by using Fibonacci trading ratios.

Conclusion

The Fibonacci is used to plot the retracement. Fibonacci retracement is used as percentages and horizontal lines to draw a price chart. They will identify possible areas of support and resistance.