Sino nga ba si Fibonacci at bakit sikat na sikat siya sa Stock Market trading community?
I asked Google and I found out about a secondary fact that surprised me. Remember Britannica? Those set of encyclopedia books that you’ve always wanted when you were a kid (or was it just me)? They’re still alive! Hurrah! If my parents were rich I would probably have acquired every single volume of these badass babies back then.
Ayun napa segue na, sorry naman! Na excite na naman ako.
So, ladies and gentlemen, without further adieu, I present to you… Mr. Fibonacci!
Mr. Fibonacci introduced to the world the Fibonacci sequence, which is a series of numbers where a number is found by adding up the two numbers before it. Starting with 0 and 1, the sequence goes 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so forth. Written as a rule, the expression is xn = xn-1 + xn-2.
Kilala din ang Fibonacci Sequence na ito as THE GOLDEN RATIO. Here is an image that represents the Golden Ratio accurately:
The Golden Ratio is known to be found everywhere, in nature and even in the human body, here are the images to explain more about this:
Because for Mang Donald, hair perfection is life!
How is Fibonacci used in Technical Analysis?
As a charting tool, the Fibonacci levels have three main functions that help technical traders like us decide on our setup. Since Fibonacci is a leading indicator, or one that helps us forecast the probable next price action, it helps us find the following:
- Expected area of Support & Resistance
- Probable Retracement areas.
- Possible bounce areas.
Notice that I used the words Expected, Probable, and Possible; because remember, NO TOOL works 100% accurate all the time just like how we are always reminded that NO TRADING SETUP works 100% at a time. No matter what lagging or leading indicator you use, always MANAGE YOUR RISKS WELL (that’s also a note to myself).
How do we plot the Fibonacci in the chart?
Here I’ll just show you a visual of how fibonacci is plotted in the chart, I’m using the investagrams chart, the Fibonacci levels used here are 0%, 23.6% 38.2%, 50%, 61.8%, 78.6% and 100%. Please note that 50% is not a formal member of the fibonacci sequence but since it has been proven in back test results that price reacts at the 50% levels it has been added to the sequence numbers that we need to consider.
In plotting your Fibonacci in an uptrend, you must start at the bottom of the latest consolidation prior to the run up, going up to the highest point of the recent run up. Simply put, ZERO must always be at the TOP on an UPTREND plotting.
The opposite must be done in a downtrend price pattern. The plotting must start at the highest point of prior to the decline, and must go down up to the lowest point of the decline prior to the consolidation or sign of reversal. In short, ZERO must always be at the BOTTOM in a DOWNTREND plotting.
Please refer to the Blue arrows shown in the image below:
Here comes the fun part, pag-usapan naman natin ang GOLDEN BIBE:
Para wala ng pa-ligoy ligoy pa, I’ll just show you in the next 3 illustrations on how you can use this Golden Ration tool as your Golden Goose that lays Golden Eggs during the uptrend of a stock.
- On an uptrend, your 23.6% area:
2. On an uptrend, your 38.2% area:
3. On an uptrend, your 50% and 61.8% area:
How do we use Fibonacci on a Bounce Play setup and on a Downtrend you ask…
Well that’s a different story, 2 different stories actually.
All I can tell you now is that the Fibonacci tool helps you
MAKE MONEY GOING UP
MAKE MONEY GOING DOWN