We all had went through a rough Q1 of 2022, where some major incidents like war, high inflation rate & potential hike of interest rate to lower inflation which caused many hot money to flow out from stock markets, and technology stocks with high PE are the first to feel the impact. At first I was scared, panic, & upset as my profit had to returned to the market but then I decided to learn something new to further enhance my skills.
That’s where I came across this indicator called Fibonacci retracement which I found it very useful and high accuracy. Here what I’m going to share is HOW TO DRAW AND APPLY FIBONACCI RETRACMENT IN STOCK MARKET.
What I do is for short term trading, I will use a 1 YEAR period for a particular counter, let say NVIDIA here. So here are the steps I used:
1: Click on 1Y to show the latest 1Y chart.
2: Find the lowest point (including the wick).
3. Find the highest point (including the wick).
4. Draw the Fibonacci Retracement line connecting lowest and highest point.
Fibonacci Retracement is made up of several levels which indicate SUPPORT and RESISTANCE. Arrow a, the correction reach the 0.618 line as support level and it rebound. When the price reached 0.382 (arrow b), it goes down again & reaching arrow C at 0.618, later it rebounded to arrow d before correction again.
REMEMBER THIS: A Resistance will become a Support after break up, and Support will become Resistance after break down. They are interchangeable so please be very FLEXIBLE.
Below are 4 general ways of using Fibonacci Retracement:
1. When the price near to support, we buy.
2. When the price near to resistance, we sell.
3. When the price break up resistance, we buy.
4. When the price break down support, we sell.
This is just a very general concepts of using Fibonacci Retracement, there are many factors affecting the price and may need some other indicators as reference too.
I hope this trade idea would be useful for you guys and for myself personally, I love this indicator & will keep apply this for my future trading.
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