EQUITY FUND MANAGEMENT

TECHNICAL ANALYSIS
FIBONACCI RETRACEMENTS
Submitted to:
Dr. Akshay Damani

Submitted by:
Admin Group 2
A06 Aayush Nanoo
A07 Aayush Rathi
A08 Abbas Kothawala
A09 Akshita Agrawal
A10 Anirudh Bazari
TABLE OF CONTENTS

S. Page
Topic
no. Number
1. Introduction 3-5

2. Fibonacci Retracement Tool in Excel 6

3. Fibonacci Retracement in Trading View 7

4. Fibonacci Trading Strategies 8

5. Fibonacci Fans in Trading View 9

6. Fibonacci Fans Strategies 10-11

7. Fibonacci Arcs in Trading View 11-12

8. Fibonacci Arcs Strategies 12

9. Limitations 13

10. Live Stock Analysis 14

11. Conclusion 15

12. References 15
INTRODUCTION
FIBONACCI NUMBERS
 The order of numbers starting from 0,1,1,2,3,5,8,13,21,34,55,89…… and so on are arranged in
such a way that the next number is the sum of the previous two terms in the sequence. This
sequence is also known as Fibonacci series.

GOLDEN RATIO

 A Fibonacci series significant because of the two golden ratios: 1.618, or its inverse which is
0.618. That’s because, any given number is approximately 1.618 times the preceding number,
except for the first few numbers and each number is approximately 0.618 times of the number to
the right of it, again the first few numbers being exceptions.

HOW DO WE GET FIBONACCI RATIOS?

 If we divide one term from the sequence by the next number, it yields 0.618, or 61.8%.
 Dividing a number by the second number to its right gives us a result of 0.382 or 38.2% and so
on.
 23.6%, 38.2%, 61.8%, and 78.6% and 50% are the most common Fibonacci ratios. (50% is not
an official Fibonacci number but used while calculations)

SUPPORT AND RESISTANCE LEVEL

 The support level is a point where demand of the stock becomes higher as compared to those
who are selling the stocks.
 This results the stock price to go down further and regain a higher price per share for the stock.
 Resistance level, which is acting as the inverse of the support level.
 In resistance level the stock will rise to a certain point but won’t go beyond the given mark
because of more supply than the demand of stocks.

UPTREND & DOWNTREND

 When a stock is going in an upwards direction more often than it goes down and creates a pattern
of a bullish stock it is known as uptrend.
 When the price of a stock is going in the downwards direction for a given period of time and the
stock price doesn’t increase often then it is known as a bearish stock with a downward trend.
WHAT IS RETRACEMENT?
 Retracement is nothing but going against a specific trend.
 In stock market terms, if market is on a downward trend, then going from downward to upward
is retracement or if a market is showing an upside trend and then falls, it is a retracement on the
downside.

FIBONACCI RETRACEMENT LEVELS

 Fibonacci retracement levels are horizontal lines which indicate where support and resistance are
likely to occur.
 Each retracement level is associated with a percentage and this percentage is how much of a
prior move the price has retraced.
 The most common Fibonacci retracement levels are 23.6%, 38.2%, 61.8% and 50% which is not
technically a Fibonacci ratio but, is also used for mathematical calculations in the number string.
 These indicators are useful because they can be drawn between any two points that a trader
views as relevant, typically being a high point and a low point. The indicator creates levels
between those two points. These percentage levels which are provided indicate areas where the
price could stall or reverse.

FIBONACCI ARCS
 Fibonacci arcs are half circles that extend outward by a line connecting price highs and price
lows knows as the base line.
 The half circle arcs indicate where the price will find support or resistance in future.
 During an increase in the price, the arcs indicate where the price can pull back to before it starts
to rise again. Similarly, during a price decline, the arcs show where the price could improve
before starting to fall again.

FIBONACCI FANS
 Fibonacci fans are a series of trend lines used to plot the support and resistance levels based on
the Fibonacci ratios.
 To create fans, you have to draw a trend line off of which to base the fan, which covers the low
and high prices over a given period of time.
 To reach the retracement levels, the difference in price at the low and high end is divided by
ratios determined by the Fibonacci series.
 These lines formed by connecting the starting point for the base trend line and each retracement
level are Fibonacci fans.
 Fibonacci fans are used to predict points of resistance or support, at which there might be an
expectation of price trends to reverse. Once a pattern is identified within a chart, the future price
movements and future levels of support and resistance can be predicted.
HOW TO CALCULATE FIBONACCI LEVELS

1. Manual Calculation
The formulas to calculate Fibonacci retracement levels in case of an uptrend or a downtrend market are
given below:

 UR = High price – ((High price – low price) * percentage) [In case of an uptrend market]
 DR = Low price + ((High price – low price) * percentage) [In case of a downtrend market]

Where,

 UR is the uptrend retracement;

 DR is the downtrend retracement.

 And the percentage can be any Fibonacci levels like 23.6%, 38.2%, 50%, 61.8%, 100% etc.

2. Using Stock Charts and different software:

The is an automatic method and we just have to select two points in the software:

 In case of an uptrend market:

Choose the lowest stock price (min_price) and the highest price (max_price) and drag the
lowest point to the highest point. All the different retracement levels will be drawn
automatically.

 In case of a downtrend market:

Choose the lowest stock price (min_price) and the highest price (max_price) and drag the
highest point to the lowest point. All the different retracement levels will be drawn
automatically.
FIBONACCI RETRACEMENT IN EXCEL

The following steps have been followed to implement the Fibonacci Retracement technique to obtain an
entry level in a stock’s upward or downward trend:

(Historical OHLC prices of Tata Motors have been taken to apply and verify the technique)

Step 1: Import Open-High-Low-Close prices of the relevant period to Excel. The period might range
from a few months to a few hours. For this stock, we’ve chosen daily data from 4th January 2021 to 3rd
March 2021.

Step 2: Create a Candlestick chart of the data imported in Step 1 and identify whether the stock is
following an upward or a downward trend. A buy-hold-sell strategy might be used in case of an upward
trend and a short selling strategy might be employed in case of a downward trend. In case of a
downward trend, the Fibonacci levels will act as resistance levels.

In the example, an upward trend has been identified and thus, the Fibonacci levels act as support levels.

Step 3: Calculate the Fibonacci levels. The formula to be used for an upward trend is
Flevel = Highest high – (Diff. in Highest high and Lowest Low) * Flevel%

Formula for Downward trend is

Flevel = Lowest Low + (Diff. in Highest high and Lowest Low) * Flevel%

Step 4: Create a line chart containing the Fibonacci levels and combine it with the Candlestick chart.
Ensure proper alignment.

Step 5: Identify the Support or Resistance level which the retracement is approaching and wait for
confirmation. Once it is the confirmed that the stock price changes its direction after nearing or touching
the Fibonacci level, entry can be made.

Step 6: Stop loss order to be placed to mitigate risk. In case of an upward trend, a stop loss sell order
will be placed just below the support level. In case of a downward trend, a stop loss buy order will be
placed just above the Resistance level.
FIBONACCI RETRACEMENTS MARKET STRATEGY:
For demonstration of the strategy, we will be looking at Tata Motors.
Fibonacci retracements use the reference of an ongoing trend and allow a trader to enter a trend at an
optimal point. By superimposing the tool Fibonacci retracements on an ongoing trend, we can identify
significant levels of retracements. We also use Fibonacci Pivot points on the chart to identify
retracement level before any moves the following day. This allows us to find accumulation of Fibonacci
levels, allowing us to identify strong demand and supply zones, and trade the price action at those levels.

TRADE SETUP:
Entry: The entry point can be determined by identifying levels where the market takes support or
resistance from the level 61.8% and 23.6% of the ongoing trend, in tandem with a pivot point to identify
a demand or supply zone. Any other level can also be considered, given that there are other retracement
points or pivot points supporting it. Strong support point in the above chart is at 23.6%, as the stock has
given a good support 2-3 times, and then also retraced from that level.

Stop-loss: The stoploss is to be set at the point where the candlestick has breached the level of 23.6% or
if it would have touched the 38.2% level. One if shorting at the support level can put a stop loss
somewhat in between 23.6% and 0%. Stop Loss always depends on the risk appetite of the investor.

Exit: An exit can be taken by looking at any support or resistance that can be found at the Fibonacci
pivot points. In this case the resistance found at price of Rs.357 would have been a good exit point. And
if you’ve shorted then good exit point can be Rs.291.30.
Some key points before taking a trade:

 These levels are key levels, but when we are testing it in the market, we should always see if the
market is respecting those levels.
 My personal strategy would be wait for the levels to breach a bit, and then take a trade, because
it is necessary to look at the chart if that movement is with the market.
 For example, if there is a particular Support level, don’t immediately buy at that point, let the
market make that point as a support, and then if it is bouncing back from that level then take a
particular trade.
 While using Fibonacci indicator, don’t fully invest your capital at once, let the market fluctuate
and invest 1/4th amount of money so that you can average your buying price if it hits support
levels below the predicted ones. This can help us to lower our buying price.
 Try avoiding using Fibonacci indicators in a choppy market, where market is moving in
sideways, always wait for a clear trend.
 If the trend has reversed use a different strategy and a new position in the market.

FIBONACCI RETRACEMENTS MARKET STRATEGY

(DOWNTREND):

Reliance Industries Ltd

TRADE SETUP:
In this scenario, we can see a major downtrend that began from 19th October, and reached a low on 4th
November, retracing upward till the 61.8% level approximately, and finally shows a downward
movement.
Entry: In this case, the 100% level would have been an excellent place to enter a short position to
capitalize on the continuation of the downtrend. At the 78.6% level the movement seemed to stabilise
until 27th November. An apt entry time could be when the stock price gets support at the 38.2% level
and shows signs of retracement.
Stop Loss: Further, stop loss could be placed around the 61.8% level as the stock seems to have faced
little resistance there making it an important watch level.
Exit: after the stock breaches the 61.8% level the traders can start booking profits as the downward
movement is prominent. If the stock breaches the 0% level an immediate sell call should be taken but if
it shows a slight uptrend the stock can be watched at the 23.6% level.

FIBONACCI FANS MARKET STRATEGY (UPTREND):

We can use the lines of the Fibonacci fan to predict key points of resistance or support, at which we
might expect price trends to reverse. Fan lines drawn by the indicator then show “zones” where support
or resistance is likely to occur. Once we identify patterns within a chart, we can use those patterns to
predict future price movements and future levels of support and resistance. We can use the predictions
to time our trades.

STEPS TO DRAW FIBONACCI FANS:

Step 1: Open your trading platform and pick the stock, that you would like to analyse. Here, I will be
demonstrating the Fibonacci Fans model on the Tata Motors prices.
Step 2: As the candlestick chart loads on our screen, then click on Gann and Fibonacci Tools section
above it. Scroll down and select "Fib Speed Resistance Fan".

Step 3: Now, we find the lowest low candle and the highest high candle from our dataset. Our dataset
includes the daily price of Tata Motors from 11th Feb, 2016 to 9th September, 2016.

Step 4: Now, first, we'll click on the lowest low and then, the highest high to establish the Fibonacci
Fans. The lowest low is here on 11th Feb and the highest high is on 9th September.

As we could witness, the price rises all the way from 260 to almost 600 and then has a fluctuating
movement after that.
TRADE SETUP:

Entry: The entry point can be determined by identifying levels where the market takes support or
resistance from the level, 0.25 of the ongoing trend, in tandem with a pivot point to identify a demand or
supply zone. Any other level can also be considered, given that there are other retracement points or
pivot points supporting it. Strong support point in the above chart is at 0.25, as the stock has given a
good support 2-3 times, and then also retraced from that level.

Stop-loss: The stoploss is to be set at the point where the candlestick has breached the level of 0.25 or if
it would have touched the above level. One if shorting at the support level can put a stop loss somewhat
in between 0.25 and 0%. Stop Loss always depends on the risk appetite of the investor.

Exit: An exit can be taken by looking at any support or resistance that can be found at the Fibonacci
pivot points. In this case the support found at price of Rs.590 would have been a good exit point.

Some key points before taking a trade:

 These levels are key levels, but when we are testing it in the market, we should always see if the
market is respecting those particular levels.
 My personal strategy would be wait for the particular levels to breach a bit, and then take a trade,
because it is necessary to look at the chart if that particular movement is with the market.
 For example, if there is a particular Support level, don’t immediately buy at that particular point,
let the market make that point as a support, and then if it is bouncing back from that level then
take a particular trade.
  While using Fibonacci indicator, don’t fully invest your capital at once, let the market fluctuate
and invest 1/4th amount of money so that you can average your buying price, if it hits support
levels below the predicted ones. This can help us to lower our buying price.
 Try avoiding using Fibonacci indicators in a choppy market, where market is moving in
sideways, always wait for a clear trend.
 If the trend has reversed use a different strategy and a new position in the market.
 Fibonacci retracement levels often indicate reversal points with uncanny accuracy. However,
they are harder to trade than they look in retrospect.
 A Fibonacci fan is a good tool, but it isn't a crystal ball and it's not going to tell you the future,
but it can obviously help you predict it.

FIBONACCI FANS (DOWN TREND)

TRADE SETUP:
Resistance: Looking at the stock price falling below the fan lines it can be said that the stock faces a
highly bearish market. And the prices do not exceed the 61.8% fan line proving it to be a strong
resistance. The following 3 strategies can be formed through the trend

 When going to a long position, we must set the stop loss a little lower than the nearest fan line.
 For short trades, the closest breakdown line can be used to set the stop-loss order i.e. above the
61.8% trend line and below the 61.8% fan line.
 A profit order can be taken with the fan closest to the trend direction i.e. 50% fan line.
In this way, the Fibonacci fans and retracement levels together help us determine our trading strategy in
a bearish (downtrend) market.

FIBONACCI ARC
Fibonacci arcs are half circles that extend outward from a line connecting a high and low, called the
base line. These arcs intersect the base line at the 23.6%, 38.2%, 50%, 61.8%, and 78.6%. Fibonacci
arcs represent areas of potential support and resistance. The arcs are based on both price and time as the
baseline gets longer the arcs get wider or the baseline gets shorter the arcs get narrower. Fibonacci arcs
are typically used to connect two significant price points, such as a swing high and a swing low. A base
line is drawn between these two points and then the arcs show where the price could pull back to, and
potentially bounce off from.

The arcs help us to get clarity about when the stock may find support or resistance. How to undertake
trades based on the arcs, we use candle stick pattern with this indicator to be surer of the trend that is
either bullish or bearish. Now as we know about support resistance and also about the trend it helps us to
know how and when to enter and exit the market. If we see a red candle intersecting an arc and the
immediate next candle formed is also red that means, it’s indicating a bearish trend.

So, at that point we can short sell when the price reaches lowest of the previous day’s candle. Which
gives a strong indication of bearish trend. During this we keep our stop loss at high price of the previous
day’s candle which intersected the arc. We have to hold our trades till the trend continues where we can
see a bounce back or the stock finds support, at that time we should book our profits. Similarly, when
we see a green candle intersecting an arc and the immediate next candle formed is also green that means
it’s indicating a bullish trend. So, at this point we can go long when the price reaches highest of the
previous day’s candle. Which gives a strong indication of bullish trend. While executing this trade we
keep or stop loss at the lowest point of the previous day’s candle which intersected the arc. We must
hold our trade till the trend continues or the stock finds resistance, at this time book profit and exit.

The Fibonacci arc must be paired with some other indicator or the candle stick pattern to be surer of the
outcome but still it does not give 100% security sometimes indicators are not able to assess the situation
correctly that time you’ll have to back it by fundamental analysis.

Let’s take an example, for this we took a stock TTK Prestige Limited from 8th oct to 28th oct 2021.
During this time, we saw 2 possibilities where we could enter a trade make profits book them and exit.

1. On 21st oct when we saw 1 red candle intersecting the arc and the next one also being red this
was an opportunity to enter trade by short selling.
 a. Price at which we would enter – 9650, stop loss at 10345.55, and holding till the trend
continued and booking profit when we see the trend changing.

2. On 27th oct when we saw 1 green candle intersecting the arc and the next one also being green,
this was an opportunity to enter trade by going long

a. Price at which we would enter – 9869.95, stop loss at 9310, and holding till the trend
continued and booking profit when we see the trend changing.

We can see a trend reversal

here so we can book profit and
exit

We can see 2 green candles so

we can enter the trade by going
long

We can see 2 red candles so we

can enter trade by short selling

We can see a trend reversal

here so we can book profit and
exit

LIMITATIONS OF USING FIBONACCI RETRACEMENT LEVELS

Fibonacci Retracements are useful to observe stock movements, however there are certain limits to use
of Fibonacci Retracements. Some of them are stated below:

 While the retracement levels indicate where the price might find support or resistance, there are
no assurances the price will actually stop there.
 This is why other confirmation signals are often used, such as the price starting to bounce off the
level.
 The other argument against Fibonacci retracement levels is that there are so many of them that
the price is likely to reverse near one of them quite often.
  The problem is that traders struggle to know which one will be useful at any particular time.
When it doesn't work out, it can always be claimed that the trader should have been looking at
another Fibonacci retracement level instead.
 Fibonacci levels are just numerical ratios it does not outlay a logical foundation behind it.

LIVE MARKET ANALYSIS

Following are 2 of the tentative stocks for the Live Market Analysis with their Fibonacci Retracements.
The actual selection would depend on which stock would give the best functional understanding of the
market while presenting.
CONCLUSION
In this project, we have tried to have a functional understanding of Fibonacci Retracements as well as
some initial brush with Fibonacci Arcs and Fans. While the research began with an understanding of
Fibonacci as something which is self-sufficient in terms of its reliance, indication and usage, the
conclusion stands at a far post.
Fibonacci, through this project, as we understand, gives us a very basic eagle’s eye view of what the
prices seem like and what the market seems to point towards. It will give us the entries and the exits,
however, the market sentiment, along with many other factors and indicators are as equally important to
make smart profit making decisions in the market. Nonetheless, Fibonacci and the Golden Ratio in itself
are tools which are essentially indispensable to modern era Technical Analysis.

REFERENCES:
https://in.tradingview.com/chart/?symbol=BSE%3ARELIANCE
https://www.investopedia.com/terms/f/fibonacciretracement.asp
https://www.investing.com/tools/fibonacci-calculator
https://www.investopedia.com/articles/active-trading/091114/strategies-trading-fibonacci-
retracements.asp
https://in.tradingview.com/symbols/NSE-TATAMOTORS/
https://www.nseindia.com/