Fibonacci retracement

Hi, welcome to this new video. Today the topic is Fibonacci. So who was Fibonacci? Well, Fibonacci was an Italian mathematician who discovered a very interesting fact. Let me show you. Suppose you have this sequence of numbers. So you start with 1 and again 1, and then every next number is the sum of two previous numbers. So we have 1 plus 1 2, then 2 plus 1 3, 3 plus 2 5. Then we have 8, 13, 21, 34, then we have 55, 89 and so on. Now what Fibonacci discovered is this. When these numbers are increasing and you take one number in the sequence, for example, let's say 55, and you divide this number by the next one, you get something that is close to 0.618. Okay? And if you take a number and you divide it by the number that you find two place after that. So for example, 34 over 89. So two place after you get something around this. And in addition, if you do the opposite, so you take a number and you divide by the previous one, for example, 89 over 55, then what do you get? 1.618. And if you do one number divide by what you find two places before. So 89 over 34, you find something around 2.618. And by the way, this is called the golden ratio. And it's something that finds many applications. But for us, what is important now is actually this, these two numbers. Why? Because Fibonacci is also used for trading. And I will show you how these two numbers are actually used. And before that, let's check if this is true. So 55 over 89. Is around 0.618. Right, we save that. And 34 over 89. Is around 0.382. And if we do the opposite, 8955. Yeah, it's 1.618. And 89 over 34 is around 2.618. Okay, so why is this important? Well, Fibonacci in trading is a tool that can allow you to guess where the price is more likely to stop a retracement. What do I mean by that? You see, the price is not moving in a straight line. You have periods where you have. The price is here, it's going up and then it's retracing and then going up, retracing, you know, and this is the uptrend. You have higher, low and higher, high. And then you may have downtrend where you have price going down, retracing, going down, retracing. And so On Right. So Fibonacci can help us identify areas where it's more likely that the price is stopping the retracement and continuing the trend. So how to use Fibonacci? Well, you can find it in basically every platform Here I show you how to use it with tinkorswim, but you can find it everywhere. So in tinkorswim, you click here Fibonacci retracement. Be careful. There are other Fibonacci like time series and time extension. We are using retracement for now. So what do you have to do? Well, suppose there is a situation like this one where you have an uptrend. What you do is you connect a low. Let me zoom in a little. You connect a low, for example, let's say here with a high. Here. Okay. And now you see these levels? Those are the levels we discussed before.38.2. And this is the. If I zoom, you will see the 61.8. There is also the 50% level. That is not a Fibonacci number, but is also used in this kind of technique. So what is the idea here? The idea is that when the price is bouncing on one of those levels and you see some kind of reversal pattern, it may be an indication of continuation of the main trend. So here, for example, we were in an uptrend and then you see the price is going up. And then you see here is testing this 61.8 level. Right. And here can you see the bullish candle? Right. This kind of pattern where you have the bearish candle followed by a bullish. So it means that the price did exactly this. It was here, right? It went up, then he went down, it touched this 61.8% level. And then the trend continues. Now bear in mind that this doesn't mean that every time the price is touching one of those levels then there will be a reversal. Right. We never know what is going to happen. What we can say is that if we see the price bouncing on this Fibonacci level together with some other indication, then is more likely that you will see the reverse. So what is the indication here? 1 Is this kind of bullish pattern as we discussed. Then if you look at the price, you may realize also that this level was somehow a resistance. Sorry, I have to use the horizontal. Yes. So you see this level around here, this area, I would say this was an area where the price tried to break, but it didn't. You see here. And then it went down. Then here again it tried and then it failed for A second time. So it was a resistance area and then the price went up and then it went down and then he used it as support. So in other words, we don't use this tool alone is used to confirm some other what we found with other indicators or other tools. So in this case we have three sign of reversal. We have the price bouncing on us on a support, horizontal support and then we have the 61.8 level and also we have this bullish candle. So how can we use this tool? Well, one way is if you are a trend follower, when you see this situation, you can buy more shares because here is more likely that the trend will continue. But if you are a counter trend trader and let's say you shorted around here, this could be an indication to take profit. Now I want to show you also what happen when you when you use Fibonacci on a downtrend. And this is Facebook is the example we are using. So on a downtrend what you do instead of connecting the low with with the high, you connect the high with the low. So again we go here, let's see, for example, we take this high. Suppose you are here and then you see the price coming down. Now what happened here is quite interesting. So the price went down and first there was this kind of small retracement to the 38.2 level. Then it went down again again here and then finally it tested the 61.8 and then the trend continued to go down. So same logic as before. Here there is a retracement and if you see some kind of price action telling you that there is a potential continuation of the trend, it means that the retracement probably is over. So here you see for example this candle. There is a very long tail, meaning that the price tried to go up, the buyers were pushing the price up, but it failed. And then this is followed by a red candle. So an indication that the bearish were taking over. Yeah, so that's how you can use Fibonacci. Remember is not a tool to use alone, it's something that you should use together with something else. Some other indicator can be the horizontal support or resistance level. Here for example, you can also realize that around this area we have around this. Level there is also a possible support you see tested 1, 2, 3 times and then it became a resistance. So this is another indication that this area is a potential resistance. And so the trend can keep going down. And you can also use other things like moving averages or whatever strategy you are using. Bollinger bands doesn't matter. The thing is that again, Fibonacci is a tool to use as a confluence indicator to give you more confidence that your analysis is correct. And again, the level to remember, the important level are the 38.2, 61.8 that as we say, they are these two numbers, right? That's why this Fibonacci is related to the discovery of this sequence. And there is also the 50. It is not as I said Fibonacci level, but is used as well. And why those numbers? Well, nobody knows. Nobody knows why this is working. People say that is a kind of self fulfilling proposal, meaning everyone is using. So it works. But the main idea is that when you have a retracement, if the retracement is larger than this level, probably is a change of trend. So the main idea is we want to see a retracement not too big. Otherwise it may be an indication that the trend we are following is actually over and there is a reversal. So with this I would like to conclude. Thank you for watching this video. If you have any question, you can write a comment and see you next time.