Technical Analysis - Fibonacci Trading

MasterTrader · #1 5th March 2005, 10:34 AM

Technical Analysis - Fibonacci Trading

Leonardo Pisano, better known by his nickname, Fibonacci, was an Italian mathematician born in Pisa in the 12th century. He is known to have discovered the "Fibonacci numbers," which are a sequence of numbers where each successive number is the sum of the two previous numbers.

e.g. 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.

The quotient of the adjacent terms in the series possesses an amazing proportion, roughly 1.618, or its inverse 0.618. This proportion is known by many names: the golden ratio, the golden mean, PHI, and the divine proportion. The dimensional properties that adhere to the ratio of 1.618 occur repeatedly in nature. Examples are as various as mollusk shells and the shapes of gallaxies containing billions of stars.

When used in technical analysis, the golden ratio is most often translated into three percentages: – 38.2%, 50%, and 61.8%. However, other multiples can be used, such as 23.6%, 161.8%, 423%, and so on. The Fibonacci sequence is applied to finance in several ways: retracements, arcs, fans, and time zones.

Fibonacci retracements use horizontal lines to identify areas of support or resistance. The levels are found by drawing lines on the chart as follows: the first at 100% (the high on the chart), the second at 61.8%, the third at 50%, the fourth at 38.2%, and the last one at 0% (the low on the chart). These price levels often correspond to support and resistance areas.

Fibonacci Trading

pareshah · #2 16th March 2006, 12:20 AM

gooooood explanation, keep it up,
god bless you,

Quote:

Originally Posted by MasterTrader

Technical Analysis - Fibonacci Trading

Leonardo Pisano, better known by his nickname, Fibonacci, was an Italian mathematician born in Pisa in the 12th century. He is known to have discovered the "Fibonacci numbers," which are a sequence of numbers where each successive number is the sum of the two previous numbers.

e.g. 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.

The quotient of the adjacent terms in the series possesses an amazing proportion, roughly 1.618, or its inverse 0.618. This proportion is known by many names: the golden ratio, the golden mean, PHI, and the divine proportion. The dimensional properties that adhere to the ratio of 1.618 occur repeatedly in nature. Examples are as various as mollusk shells and the shapes of gallaxies containing billions of stars.

When used in technical analysis, the golden ratio is most often translated into three percentages: – 38.2%, 50%, and 61.8%. However, other multiples can be used, such as 23.6%, 161.8%, 423%, and so on. The Fibonacci sequence is applied to finance in several ways: retracements, arcs, fans, and time zones.

Fibonacci retracements use horizontal lines to identify areas of support or resistance. The levels are found by drawing lines on the chart as follows: the first at 100% (the high on the chart), the second at 61.8%, the third at 50%, the fourth at 38.2%, and the last one at 0% (the low on the chart). These price levels often correspond to support and resistance areas.

Fibonacci Trading

pram · #3 20th March 2006, 11:04 PM

how can we use fibonacci in day trading

trader31339 · #4 21st March 2006, 08:33 PM

any way or a trick to find out how deep will the correction be???

will it be only upto 38% or go below upto 61% , how to find out this

johngreen · #5 22nd March 2006, 06:15 AM

in order find the retracement level what u have to do is, suppose the sensex rallied from 10800 to 11000 then
11000-10800=200
then multipy this 200 with 0.382(200 *0.382=76.4)
now minus that rounded figure 76 from 11000 so sensex will take support at 10924.

if the down trend continues then instead of 0.382 u have to multiply with 0.618 and do the same steps.

so 10877 will be the next step.

trader31339 · #6 22nd March 2006, 10:53 AM

johngreen,
I know how to calculate the retracements, and with metastock we can do it automaically.The question is , is there any trick by which we can foin out whether the correction will head upto 61% or not.

If we are able to find out this, we can accordingly plan our trades.

rajesh.sadhanala · #7 22nd March 2006, 06:15 PM

Quote:

Originally Posted by trader31339

johngreen,
I know how to calculate the retracements, and with metastock we can do it automaically.The question is , is there any trick by which we can foin out whether the correction will head upto 61% or not.

If we are able to find out this, we can accordingly plan our trades.

To understand the trend reversals, One need to understand the pattern on the chart. These are the level u would find Support and Resistance. If the support or resistance breaks then ur next level would be ur target.

Actually it is already related to previous positions and buy/ sell positions.

Hope I gave some info.

Raj

AJAY · #8 22nd March 2006, 06:48 PM

Dear raj,
Can you be a little elaborative on this. My dull head is getting confused?
Thanks in advance
AJAY

trader31339 · #9 22nd March 2006, 08:12 PM

Dear Raj,

I have a technique by which we can calculate the probable depth of reaction.

As per that technique I feel the present correction in Nifty Index wont be more than 3200 which is 38.2%, I feel the corrections depth =38.2 and wont go upto 61.8%.

BTW,I am not saying this coz of earlier peak of 3192, pls lets not forget that markets can breach supports as well as resistances, peaks as well as trough.

My technique gives me a clue that that peak wont be touched.

TRADING:
Since, I am of the view that correction will be halting at 3200 levels and so I can expect a bounce from here.Now , many times it happens that as soon as correction is over or halted the stock doesnt jumps up but it is rangebound for a day or two.So its not possible for me to comment that Nifty will jump at once from 3200.

However, I am bullish

With 5 working days for expiry,I am dunno wanna buy Call,

One more thing, in april series there is no call writing infact there is call buying Nifty 3250CE so we can confirm our bullishness.

I will b however, monitoring the 3250 call april one and as soon as it premium is within 1.5 range i may buy it.( Please do not take this trade NOT RECOMMENDED )

aca_trader · #10 22nd March 2006, 09:03 PM

Quote:

Originally Posted by trader31339

Dear Raj,

I have a technique by which we can calculate the probable depth of reaction.

Dear Trader,
Can we have a feel of that technique?

Best Reagrds,

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