In my opinion, the calculation and use levels or Fibonacci retracements is one of the most important and effective tools that every self-respecting serious investor should use.
Leonardo of Pisa, known as Fibonacci, was a mathematician who was born in 1175. He created a series of numbers that have a peculiarity: each number is the result of adding the two previous numbers.
Example: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and so on.
If each number in the series is divided by the previous number we obtain the figure 1,618, which is the "ratio of proportions".
The pyramids of Egypt and the pyramids of Mexico have this ratio in their geometric structure. Also the Greek sculptures and architectural works of ancient Greece.
Applying the Fibonacci series and the proportional number to the world of the stock market, we get the following:
Key levels are 38.2%, 50%, 61.8% and 100%. These are setbacks price.
If the price is set back from the maximum of its previous advance, less than 38%, it is considered that the preceding movement is strong.
If the price is set back from the maximum of its previous advance, over 60%, it is considered that the preceding movement is weak.
The first decline after a strong upward movement is usually a buy zone in 95% of the time.
After a throwback to 38%, the subsequent advance usually reaches new highs.
If the decline is in the 50% the chances of making new highs are reduced to 50%.
If it reaches or exceeds 60%, the options make new highs is 25%.
I'll explain how I use in my operation the Fibonacci series, both as a reference for inputs and outputs reference.
Say I use two types of Fibonacci, the primary and secondary. The main line between the maximum and minimum relevant. The secondary is between a maximum and a non-relevant minimum.
Let's start seeing an example of secondary and immediately see another example of the main
If you look at the chart, I have drawn Fibonacci from 7798.5 (which is not relevant maximum because the relevant will see top left) to 7661 which is the last minimum.
When I draw it, we get the 3 levels Fibonacci, in this case 7713.5, 7730 and 7746. A priori levels with which you can already start working.
What allows us to do these attainments? On the one hand, they serve as entry points for a rebound down (because remember that Fibonacci is to look for a rebound against price direction).
On the other hand, they serve as target points and projection. In this graph, for example, if we had been purchased from below, we used to be closing contracts the purchase.
An important clause to bear in mind is that we are talking about secondary Fibonacci levels, which, in principle, are usually less robust and less reliable than the major Fibonacci levels. What do I do then as they are more at risk? Then add a safety filter.
Indeed, I add filter are four moving averages, specifically SMA 200 and exponential averages 10.20 and 50.
Thus, if one of the Fibonacci levels side matches in the same area with one of four moving averages (more or less need not be at the same price, but the more the better), the level is reinforced, with what you are more likely to work.
If, however, does not match any of the means with no side Fibonacci, what I do is that I operate but with lower leverage, ie, with a smaller number of contracts, so I compensate for the risk involved with lower leverage, so if the operation goes wrong me and I jump the protective stop (stop loss) loss in economic terms it is lower than in a traditional or daily operation.
Let's now an example of major Fibonacci levels.
As you can see from the chart, I have drawn Fibonacci from a relevant maximum to the last minimum, obtaining three levels.
This is valid what I mentioned with the secondary levels, ie, which serve as entry points for a rebound down (because remember that Fibonacci is to look for a rebound against price direction) and also serve as target points and projection. In this graph, for example, if we had been purchased from below, we used to be closing contracts the purchase.
In these Fibonacci levels, being primary and not secondary, it is not necessary to use the security filter four moving averages?
You see, a good security filters never too or may be rejected. Therefore, in this case, if it matches a level with the filter, entered more leverage than if different.
TIP: secondary Fibonacci levels only used to calculate targets or projections, that is, where to get out.
The main Fibonacci levels to exit the also use instead as input and are also valid, especially if more or less coincides with a moving average or a support-resistance.
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Regars,@marcporcel!
Great material. The title however is wrong. It should be a lesson about Fibonacci Levels in technical analysis or something like that. Thanks for the useful post!
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