All that You Need To Know About Fibonacci Retracement in Stock Market
A retracement can be explained as an impermanent reversal in the opposite direction of price of a stock that goes against the existing trend. When the price of stocks are gathered and presented generally in upward direction then the small dips in opposite direction experienced by the stock price in chart is called retracement. There is difference between retracement and reversal in chart. Retracements are small dips or u-turns of the trend whereas the reversals are the long turns ending the present trend of the market and representing the beginning of new trend of stock prices.
When the retracement first begins, the technical analyst gets confuse and for them it becomes difficult to differentiate between reversal and retracement. However, technically both the terms can be differentiated. Retracements are the minor changes in price of stock within a longer trend. The reversals are end of long-term changes of stock price and beginning of new trend. The technical analysts differentiate between the retracement and reversals by using Fibonacci retracement. Fibonacci retracement is the method of analyzing technically the support and resistance levels. Fibonacci retracement use horizontal lines to represents the areas of support and resistance.
The horizontal lines are divided in the ratio of Fibonacci series, i.e. 0, 1, 1, 2, 3, 5, 8, 13, 21, 34…………..
In Fibonacci series, the sequence number is the sum of the previous two numbers.
In any trading scenario there are no guarantees. You cannot win trading without the benefit of a crystal ball, using common sense, a solid trading strategy, and the appropriate technical tools. Only a knowledgeable trader can navigate price movements successfully, whether these movements are short term retracements or long term reversals and thus generate accurate tips.