Today we’re going to talk about What Is Fibonacci Retracement And How To Draw Fibonacci Levels? we had mentioned will calculation. Hope this will help you in making your trading experience better.
What Is Fibonacci Retracement ?
Fibonacci retracement levels stemming from the Fibonacci sequence are horizontal lines that indicate where support and resistance are likely to occur.
Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. While not officially a Fibonacci ratio, 50% is also used.
The indicator is useful because it can be drawn between any two significant price points, such as a high and a low. The indicator will then create the levels between those two points.
Suppose the price of a stock rises $10 and then drops $2.36. In that case, it has retraced 23.6%, which is a Fibonacci number. Fibonacci numbers are found throughout nature. Therefore, many traders believe that these numbers also have relevance in financial markets.
How to draw Fibonacci Levels
On 1st, you have to find a strong trend to be biased in a particular direction. Now analyse the same trend in lower TF (Time Frame) in such case, our trend is down, so we will draw from Lower High to low and mark up the potential continuation zones matching with Fibonacci lines.
You can see the market retraced back to 0.618 (61.8%) and a beautiful fall from there. Meanwhile, there is also a resistance level that was tested multiple times.
How to Calculate Fibonacci Retracement Levels
As discussed above, there is nothing to calculate when it comes to Fibonacci retracement levels. They are simply percentages of whatever price range is chosen.
However, the origin of the Fibonacci numbers is fascinating. They are based on something called the Golden Ratio. Start a sequence of numbers with zero and one. Then, keep adding the prior two numbers to get a number string like this:
0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987…with the string continuing indefinitely.
The Fibonacci retracement levels are all derived from this number string. After the sequence gets going, dividing one number by the next number yields 0.618, or 61.8%. Divide a number by the second number to its right, and the result is 0.382 or 38.2%. All the ratios, except for 50% (since it is not an official Fibonacci number), are based on some mathematical calculation involving this number string.
Interestingly, the Golden Ratio of 0.618 or 1.618 is found in sunflowers, galaxy formations, shells, historical artifacts, and architecture.
