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Fibonacci Finalised

The Fibonacci sequence is a series of numbers where each number is the sum of the two preceding numbers. Key Fibonacci ratios like 61.8%, 38.2%, and 23.6% are used in technical analysis of the stock market. Known as Fibonacci retracements, these ratios indicate possible support and resistance levels that a stock price may reach during a price change before reversing direction. While popular, Fibonacci analysis is not foolproof and stock price movement may not always align with the ratios.

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77 views3 pages

Fibonacci Finalised

The Fibonacci sequence is a series of numbers where each number is the sum of the two preceding numbers. Key Fibonacci ratios like 61.8%, 38.2%, and 23.6% are used in technical analysis of the stock market. Known as Fibonacci retracements, these ratios indicate possible support and resistance levels that a stock price may reach during a price change before reversing direction. While popular, Fibonacci analysis is not foolproof and stock price movement may not always align with the ratios.

Uploaded by

Nandita
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FIBONACCI SERIES IN STOCK MARKET

Mathematics has been a vast subject to explore ever since and has been in
use in every way possible. It has widespread use in every field in endless
possible ways.
Similarly, the Fibonacci sequence is widely used in the stock market by
technical traders and has various aspects .

Fibonacci Ratios
Before we can understand why these ratios were chosen, let's review the
Fibonacci number series.

The Fibonacci sequence of numbers is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21,


34, 55, 89, 144 …. where each term in this sequence is simply the sum of the
two preceding terms up to infinity.
Greatness of this numerical sequence is that each number is approximately
1.618 times greater than the preceding number which is widely known to be
the golden ratio.
The golden ratio is used in every field possible known to man and is very
useful in creating patterns which are soothing to the eye.

The key Fibonacci ratio of 61.8% is found by dividing one number in the series
by the number that follows it. For example, 21 divided by 34 equals 0.6176,
and 55 divided by 89 equals about 0.61798.

The 38.2% ratio was discovered when 55 was divided by 144 and it equated
to approximately 0.38194.

The 23.6% ratio was discovered when 8 was divided by 34 and it equated
0.23529.

Retracement and Stock Price Prediction


Fibonacci retracements are based on the key numbers identified by
mathematician Leonardo Fibonacci.

Unkowingly, these Fibonacci ratios seem to play a role in the stock market,
just as they do in nature. Technical traders attempt to use them to determine
critical points where an asset's price momentum is likely to reverse.

Fibonacci retracements are the most widely used because of their relative
simplicity and partly due to their applicability to almost any trading instrument.
They can be used to draw support lines, identify resistance levels, place stop-
loss orders, set target prices and act as a primary mechanism in
a countertrend trading strategy.

Fibonacci retracement levels are horizontal lines that indicate the possible
locations of support and resistance levels which are associated with one of the
above ratios or percentages. It reflects on the prior moves the price has
retraced. However, the price of the asset usually retraces to one of the ratios
listed above before that happens.

The following chart illustrates how a Fibonacci retracement appears. Notice


how the price changes direction as it approaches the support and resistance
levels.

Pros and Cons


Despite the popularity of Fibonacci retracements, the tools have some
conceptual and technical disadvantages that traders should be aware of when
using them.

Fibonacci is profitable for some and called highly reliable by the rest .Others
argue that technical analysis is a case of a self-fulfilling prophecy. If traders
are all watching and using the same Fibonacci ratios or other technical
indicators, the price action may reflect that fact.
Fibonacci tool is a numerical anomaly that is not grounded in any logical proof.
The ratios, integers, sequences, and formulas derived from the Fibonacci
sequence are only the product of a mathematical process. Making Fibonacci
trading inherently unreliable. However, it can be uncomfortable for traders who
want to understand the rationale behind a strategy.

Furthermore, a Fibonacci retracement strategy can only point to


possible corrections, reversals, and countertrend bounces. This system
doesn’t confirm any other indicators and doesn't provide easily identifiable
strong or weak signals.

Everything being said Fibonacci Series used in the Stock Market is the
strongest technical tool used by majority and is immensely useful in technical
analysis.

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