Fibonacci analysis
- 1. Investment InsightsInvestment Insights Fibonacci Analysis StockStream LLP
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- 4. - 4 - All about investments. © StockStream LLP Introduction • Fibonacci analysis is a very powerful technical analysis tool. It can be used independently or in combination with other technical indicators. • Fibonacci Series consists of the following numbers: 1,1,2,3,5,8,13,21, … • Fibonacci numbers exhibit important relations with each other o Dividing one number by the next = 0.618 o Dividing a number by the previous = 1.618 o Square root of 0.618 = 0.786 o Square root of 1.618 = 1.27 o Dividing a number by second number after it = 0.382 • The important Fibonacci levels are: 0.382, 0.5, 0.618, 0.786, 1.27, 1.618, 2.618 • These ratios provide important support and resistance level
- 5. - 5 - All about investments. © StockStream LLP Fibonacci Retracements • Markets retracements in uptrends or downtrends generally find support or resistance at Fibonacci levels. • Levels to watch are 38.2%, 50%, 61.8% and 78.6% retracements of the move. • A move above the 78.6% retracement indicates trend reversal. • Trading Strategy o Use candlestick reversal patterns to initiate buy or sell at Fibonacci Levels. o Place stops according to the guidelines of the pattern o Use the following as guides for targets A 38.2% retracement gives a 1.618% projection A 61.8% retracement goes to a 1.382% projection, etc
- 6. - 6 - All about investments. © StockStream LLP Fibonacci Extensions • Fibonacci Extensions provide price targets in an uptrend or downtrend after a reversal at a swing high and test of a Fibonacci retracement level. • The Fibonacci extension levels are obtained by adding the length of the move in the direction of the move (100% level). • The standard Fibonacci extension levels are 138.2%, 150%, 161.8%, 231.8%, 261.8%, 361.8% and 423.6%.
- 7. - 7 - All about investments. © StockStream LLP Example • The pair came back to the 38.2% retracement before moving up. • The 38.2% retracement gives a 161.8% projection for the target. • The target projection is measured from the low of the pullback. • The price topped our at the 161.8% extension before moving lower.
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