5 important things to know about Fibonacci retracement.

Are you looking to learn about Fibonacci Retracement and to use it with the full potential of the tool?

Then you seem to have landed on the best article because here we are going to discuss every bit of knowledge that one has to acquire to become an expert in Fibonacci retracement.

First, we need to understand that it is a tool, not an indicator.

Everyone who uses technical analysis to analyze their stocks uses this to identify the best place and time for the stock to move upside or downside.

#1 How does Fibonacci retracement come into existence in technical analysis or the stock market?

It is a long-back story, as somewhere in the 2nd century BCE, one of the Indian Acharya Pingala mentioned it in one of his works. Even there are saying that the Fibonacci numbers are so important and strong that they even could be found in nature.

For a better understanding, the Fibonacci Retracement number sequences are as follows:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377 and so on…

Actually, it will shock you if you come to know that, interestingly, each number in sequence is approximately greater than 1.618 times its previous number.

One of the interesting facts is that even in tree leaves, if we pluck one of the stalks from it, then we will find that the stalk will consist of one of these numbers mentioned above, like 5.

Not only this, but even the human hand has 5 fingers. Isn’t it so amazing that it is working everywhere? Then why not in trading?

#2 Important ratio of Fibonacci retracement

The figure in Fibonacci Retracement is given in ratio rather than in numbers.

There are many ratios, as every ratio is vital, but only a few of them are crucial as they tend to react more often than any other ratio.

If we retrace the Fibonacci, then we will find many numbers, which will include 0%, 23.6%, 38.2%, 50%, 61.8%, 100%, and so on.

Out of the above and the many not mentioned as the traders and one who is analyzing the technical of the stock uses, 61.8% is the best and the one that can give the best possible opportunity to make the most out of any stock.

It is not necessary to know about its calculation and how it is found, but for general knowledge, it is found by dividing 21 by 34 or 55 by 89, as these are the Fibonacci number sequences.

#3 Why the ratio of Fibonacci retracement has become important

If we look at the retracement made by Fibonacci, then we will find that it somewhere looks like we are stretching some horizontal kind of line to determine the support and resistance in the stock price.

So, the actual support and resistance and the ratio made by Fibonacci retracement make a similar kind of support and resistance at some levels.

As, knowingly or unknowingly, if the retracement fails, then the support and resistance levels will come to aid and do the things for the retracement, and it is the best thing for any tool to get a backup like support to analyze technically.

It is also true that the ratio of Fibonacci Retracement works great in every stock or in the index that its demand of using has become important, as many are using this tool to identify the nature of the stock, and if we do not use it then we will be unaware of the outgoing of the stocks use and happenings.

#4 How to use Fibonacci Retracement

Well, it is easy and simple to use Fibonacci Retracement; there is no science that one has to learn to use it. Just follow the steps below to use it.

• One simply has to open the stock on which one wants to apply the Fibonacci Retracement.
• Select any time frame of your choice on which you want to see the ratio of the Fibonacci.
• Second, just go to the tools option, which is available on the chart regardless of what trading platform you are on.
• Select the Fibonacci retracement from the tool option.
• Then hover it on the chart, and you will see the plus icon or a line kind of stretching on the chart.
• Find out the previous low or high; if the stock is going downside, then click on the previous low point and stretch to the high point that the stock has previously made. If the opposite happens, then do the same thing, but this time you will have to stretch from high to low previously made to find the future out bursting of the stock.

So, these are steps that one has taken to find the golden ratio of the Fibonacci retracement of the stock.

#5 How to increase Fibonacci Retracement accuracy

This question arises in our mind: the Fibonacci Retracement figures failed in our analysis. This is because for some reason of which we are not aware; it could be because of some news circulating in the market, or for fundamental reasons, or for any technical reason; it could be anything because that’s why the market is so uncertain as it changes frequently.

So, what is the solution to overcome it?

See, there is no tool that is 100% accurate; the thing that makes it accurate is our discipline and money management system.

Frankly, there are no such remedies to overcome it, but one thing that we can do to lessen our effect is by using another method of analyzing with the fusion of Fibonacci retracement, like using the Fibonacci retracement with the candlestick patterns such as the flag pattern, bullish engulfing pattern, hammer candlestick pattern, and many more of our choice.

But remember not to use it with every pattern at once, only using one or two; otherwise, you will mess up the chart, and instead of getting something from you, you will lose, on the other hand.

My experience with the Use of Bullish Engulfing in Fibonacci Retracement

My experience with Fibonacci retracement gives me a lot of confidence when I look at the chart with the help of this tool, as it gives me a correct sense of knowledge of the smooth running of the stock.

But sometimes when it fails, I only get a small amount of effect from it because most of the time I use it with a bullish engulfing pattern, which works as a backup plan for me when I use it with Fibonacci Retracement.

And one more thing, just mark it on your mind because this can make you more confident in taking trades, and that is, use the Fibonacci retracement to buy with the bullish engulfing only when it happens on or above the 61.8% ratio, and that’s what I do.

Final thoughts

Acquiring and implementing are both different words and different things, so after reading this post, you might have acquired many things, but implementing is the greatest knowledge that one can get.

Using the Fibonacci retracement on your own strategy is the best thing one can do to get the maximum benefit because learning from your own experience makes you more confident and informative than anyone else.

Fibonacci Retracement is a tool that is more beneficial than any other tool, so why wait and go and use it and let me know in the comment whether it benefited you or not?

FAQs on 5 important things to know before using Fibonacci retracement.

Most of the important questions that are asked and which are related to Fibonacci retracement.