InvestorQ : Can I use Fibonacci to only put in one trade or can I use Fibonacci to put in a series of consecutive trades? # Can I use Fibonacci to only put in one trade or can I use Fibonacci to put in a series of consecutive trades? Answer 2 years ago
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Actually, you can put in a series of trades and this approach is called Fibonacci Extension. Let us start by assuming that the price of Bunt Ltd. has moved from Rs.10 to Rs.40. Note here that this most basic form of Fibonacci has four characters and the last two numbers represent the (1-x) factor of the first two numbers. For example, 24 and 76 make up 100 while 38 and 62 also make up 100. Investors watch these levels for indications that the market is finding support from where price will begin rising again. For example, if you are looking for a chance to buy the stock after approximately a 38% retracement in the stock price of Bunt Ltd., you might enter an order to buy around the Rs.29 price level. (The move from Rs.10 to Rs.40 = Rs.30; 38% of Rs.30 is Rs.11 (rounded). Thus the order to buy the stock of Bunt Ltd. on retracement should be ideally placed at Rs.29 (40 – 11). But how do we put subsequent trades. That is where we use Fibonacci Extensions. Let us look at that in greater detail.

Continuing with the above example – So now you’ve bought the stock at Rs.29 and you’re trying to determine a profit target to sell the stock of Bunt Ltd. For that, you can look to Fibonacci extensions, which indicate how much higher price may extend when the overall uptrend resumes. The Fibonacci extension levels are pegged at prices that represent 126%, 138%, 162%, and 176% of the original uptrend move, calculated from the low of the retracement. So, if a 38% retracement of the original move from Rs.10 to Rs.40 turns out to be the retracement low, then from that price (Rs.29), you find the first Fibonacci extension level and potential “take profit” target by adding 126% of the original Rs.30 move upward. The calculation goes as follows:

Fibonacci extension level of 126% = Rs.29 + (Rs.30 x 1.26) = Rs.66 (rounded) which essentially gives you a target price of Rs.66. Remember that you rarely have to do all these complex number series calculations manually. You can just upload the Fibonacci facility on to your chart software and the charts will take care of the rest. Effectively, you just plug a Fibonacci indicator into your charting software and it displays all the various Fibonacci levels that you may require for the trade.

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