MIRACLE OF FIBONACCI NUMBERS AND FIBONACCI RATIOS IN FINANCIAL
MARKETS
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AGENDA
Theory & Basics of Fibonacci Numbers & Ratios = 20 minutes
(Basics /Revision)
How to Draw Fib Retracements, Extensions & Projections – 20 minutes
Retracement (Correction & Pull-Back) – Charts = 20 minutes
Critical points from where the price can reverse = 20 minutes
Extensions & Projections = 20 minutes
Fib Ratio Exponential Moving average = 10 minutes
Q&A = 10 minutes
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Leonardo Fibonacci
In the early 1200's, the Italian mathematician
Leonardo Pisano Fibonacci uncovered a secret
about this ancient method that would revolutionize
the entire mathematical world...including the
financial markets!
He developed the famous Fibonacci sequence of
numbers, which has become the foundation of
many effective trading systems.
These Fibonacci numbers are used in art, music,
biology and architecture, and are used in the
financial markets to identify strong
support/resistance levels.
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Italian Mathematician Leonardo Pisano
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The Fibonacci Sequence
The sequence, shown below, simply says that the third number is
effectively the sum of previous two numbers -
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and so on.
In this series, the real value lie's in the fact, that the ratio of any
number to the next higher number is approximately 0.618, and
the lower number is 1.618.
The key Fibonacci ratio of 61.8% - also referred to as "the golden
ratio" or "the golden mean" - is found by dividing one number in
the series by the number that follows it. For example: 8/13 =
0.6153, and 55/89 = 0.6179.
The 38.2% ratio is found by dividing one number in the series by
the number that is found two places to the right. For example:
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55/144 = 0.3819.
Fib Numbers & Fib Ratios
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Fibonacci In Human Body
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Fibonacci and the Market
These ratios seem to play an important role in the financial markets, just as they do in
nature, and can be used to determine critical points that cause price to reverse.
Price has an uncanny way of respecting Fibonacci ratio’s, often quite precisely. Hence
one can use the Fib ratios to ascertain the correct technical levels.
Price action is never random, and every wave leaves behind the clues for the next
move. We can thus, use the previous price action to determine the anticipated
price movement.
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Fibonacci Retracement
Retracements occur when a given market is rapidly heading in a certain
direction. The market retracts as traders tend to take some profits. This
retraction represents a good time to re-enter the market, since the levels will
be very appealing before the market starts growing again.
The Fibonacci retracement is calculated by taking two extreme points (usually
a swing high and swing low) on the price movement and dividing the vertical
distance by the key Fibonacci ratios.
The direction of the prior trend is likely to continue once the price has
retraced to any of the ratios.
If the market is moving up and making new highs, Fib retraces will draw levels
BELOW the current price.
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Ideal Situation
For price in an existing trend - when we are looking for a pullback to rejoin the existing
trend.
In case of a Correction, we plot the Fib retracement ratios on the previous existing
uptrend and vice-versa.
If the pullback is held within the Fib retracement levels, then the indication is that price
should resume the trend again.
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Fib Retracement 61.8% & 1.618
(Golden Ratio)
Throughout history, the ratio for length to width of rectangles of 1.61803 39887
49894 84820 has been considered the most pleasing to the eye.
This ratio was named the golden ratio by the Greeks.
In the world of mathematics, the numeric value is called "phi", named for
the Greek sculptor Phidias.
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Fibonacci Retracements
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Fib Retracement (Correction) 23.6%
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Fib Retracement (Correction) 38.2%
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Fib Retracement (Correction) 50%
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Fib Retracement (Correction) 61.8%
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Fib Retracement (pull back) 23.6%
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Fib Retracement (pull back) 38.2%
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Fib Retracement (pull back) 50%
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Fib Retracement (pull back) 61.8%
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Questions??????????
From where will the price reverse..
At which point I can get the maximum possible profits.
At which point I can get minimum stop loss.
How to find such critical levels.
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Hero Moto
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Hero Moto Lower Time frame with
Double Divergence
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Crompton Greaves
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Crompton Greaves – LTF – triple –ve
div
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Possible Reversals for Support
In a lower degree time frame, RSI should come above 30 or should
give a positive divergence.
Double positive divergence indicates a good support
Triple positive divergence indicates an excellent support
Along with a bullish candle can add more weightage
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Possible Reversals for Resistance
In a lower degree time frame, RSI should come below 70 or should
give a negative divergence.
Double negative divergence indicates a good resistance
Triple negative divergence indicates an excellent resistance
Along with a bearish candle can add more weightage
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Fibonacci Projections/Extension
The Fibonacci projections are used to determine the
expected price targets, once it has crossed the
Fibonacci retracement levels.
If we are anticipating the price to resume the
uptrend, we can use the last prominent pullback to
determine the expected targets.
The calculation of the Fibonacci projection is based
on this principle, and we can project the price action
forward, using the last prominent moves.
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Projection-Ideal situation
For estimating the price targets after the pullback
is completed.
We project the price action forward, estimating
that it will reach the fib levels.
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Fibonacci Extensions
Fibonacci extensions are a tool that traders can use to establish profit targets or
estimate how far a price may travel after a pullback is finished. Extension levels are
also possible areas where the price may reverse.
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Example of Fib Extension (Rise)
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Example of Fib Extension (Fall)
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Projections-Targets
It offers a distinct advantage over the other usual fib
ratios, since it is used to calculate the price objectives in
an existing trend.
Rather than drawing levels “behind” the market, the fib
Projection draw them in “front” of the market.
In other words, if the market is moving up and making
new highs, the standard fib retracements will draw levels
BELOW the current price, but the fib Projections will draw
levels ABOVE the current price.
The fib Projection
determine where prices could
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potentially move to. The advantage is that these levels
Projection
To draw Fibonacci Expansion targets, we require three
swing points
We measure the distance from Point A to Point B.
However, we can’t project price targets until Point C has
been established. Only when Point C has been formed do
we have the necessary three swing points.
In short, we identify a trend that has started and pulled
back, forming Points A and B, and wait for Point C to form.
Once Point C has formed, we plot the Fibonacci Expansion
Tool on Point A, Point B, and Point C.
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Projection
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Fib Projection Fall – 1.618
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Fib projection (fall) – 2.618
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Fib Projection – (Rise) – 1.68%
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Fib Projection – (Rise) 2.618
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EMA 61 ( Based on Fib Ratio)
Can be used as Support and Resistance.
Acts as good support and resistance in the hourly time frame (60
Minutes + 61 EMA Combination)
Works in all time frames.
With 15 Minutes ( Already done in Webinar – Wonders of RSI + EMA)
For Nifty Intraday can be used in 5 minutes time frame along with RSI
( I buy only Nifty call/put options using this)
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Short Trade Reliance - EMA 61 on
Hourly TF
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Long Trade – Ambuja – EMA61 on
hourly TF
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General Rules
If the price breaks one fib level, it has a very high probability of going to the next fib
level.
For a valid entry into a fib level, one must have a candle close above/below the fib
level. (Candle close of the same time frame that one is referring to)
A high probability of reversal is considered when we have a strong candlestick
pattern/chart pattern (like a Doji or a divergence) forming on a fib level.
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Important Rules
However confident I am, I still trade within my limits
If I come to know I am trapped then I can exit with a small loss (STOP
LOSS IS COMPULSORY FOR ME without which I cannot trade) but if the
market comes to know that I am trapped, it may kick me out of the
market.
Never trade without knowledge.
Don’t ask anyone Market kya lagta hai – Because:
You don’t know what time frame he is looking at.
He doesn’t know what time frame you are asking for.
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Fibonacci Style Thank You
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