Update 3:
Using Fibonacci in DayTrading
In markets, absolute do not exist. The only help an investor gets in anticipating future price trends is given by the possibilities and probabilities that are present in all mathematical game theory.
I have found that there is only Fibonacci and Elliott wave principle, which can give wider variety of price movements and it is able to quantify their possible resolution more accurately. It is best technical tools among all the technical indicators.
There are many type of investors in the market but no one can earn money like Elliott wave followers. This is wonderful technical tools than others in the stock market.
How will you use the Fibonacci in Intraday.
In finance, Fibonacci retracements is a method of technical analysis for determining support and resistance levels.They are named after their use of the Fibonacci sequence. Fibonacci retracement is based on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.
Fibonacci ratios are...............
0%, 23.6%, 38.2%, 61.8%, 76.4%, 78.6%, 100%
First of all find the daily volatility.
Where you will find the daily volatility. I am giving a link on NSE website. To see the volatility go through this
Link.
There you will see a attachment of daily volatility file in Excel. open this.
There you will find nifty current volatility in ( G ) columns.
and nifty previous day volatility in ( F ) columns
As you see,suppose previous day volatility in ''F'' columns is at 0.0066.
Multiply it with 100. 0.0066 x 100 = 0.66.
This is your previous day volatility. I am giving this example so that you can assume the fact. After that you calculate the range of nifty. I am telling you this formula to find the range of nifty for next day.
The previous day volatility is 0.66. That means nifty can move 0.66% in either direction.
Closing price of previous day suppose 5851.50 x 0.66% = 38.61 points.
Means nifty can go up 38.66 points and can fall 38.66 points. means lower range for nifty will be 5851.50-38.66= 5812.84 and upper range for nifty will be 5851.5+38.66= 5890.16
Now what is the importance of Fibonacci.
just see.
Now consider the ratio. In stock market 38.2% and 61.8% are two important ratio to consider the trend. Means if prices fell below 38.2% the trend may proceed in further direction and if price fell below 61.2% means confirm negative. Similarly if price go above 38.2% the trend is entering in positive and if go above 61.8% it is confirmed positive trend.
Now our volatility point is 38.66. find the value of 38.2% of 38.66 = 14.76 points.
subtract this point value from closing price. 5851.50- 14.76= 5836.74. This is the first support area.
Now market low that day was 5839.15 and market 38.2 retracement level was 5837. market reversed from that area and did not cross the maximum volatility range which was 5890. It made high 5886.10.
Generally we see market move in small range and these Fibonacci ratio work very well. In highly bullish or bearish range market will complete another cycle of volatility point.
So in the down side 38.2% and 61.8% are support area and up side 38.2% and 61.8% of volatility are resistance area.
You can setup your trade with this formula in intraday.
Similarly you can find next day range of nifty.
If Current volatility is 0.65
If market open gap up above 61.8% of volatility points consider intraday trend is positive, and if market open gap down below 61.8% of volatility means intraday trend is down. Often near its lower range and higher range trading in opposite direction with stoploss of 6 points are more profitable.
Consider trend is confirm bullish above 61.8% of volatility point
and trend is confirm negative below 61.8% of volatility points. in range bound market buy near lower range of market is more profitable setup. similarly sell near its up side range is more profitable. market often reverse 3-4 points before from its range.
remember if you are trading with this setup your stoploss should be 7 points only.
In bullish up trend on eod base 38.2% and 61.8% lower side level work very well for reversal. similarly in negative trend 38.2% and 61.8% work very well for reversal.
I am confident it will really improve your intraday trading.