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What is Fibonacci Retracement? How to use Fibonacci Retracement in Trading? Explained By CA Rachana - YouTube
Channel: CA Rachana Phadke Ranade
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Let me ask you few quick questions to begin our聽
video, ok. How much is 13 divided by 21? Check聽聽
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out for yourself. Next, how much is 34 divided聽
by 55? One more, how much is 89 divided by 144,聽聽
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and if you have checked out on your聽
calculator, you will understand that,聽聽
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the answer for all these three questions聽
is the same. Is this magic? What is it?
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Hi guys CA Rachana Ranade here, and I welcome you聽
all to my lecture series on technical analysis.聽聽
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I'm sure by now the excitement already might have聽
begun to build in, wherein you might be really聽聽
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curious to know, as to how come the answers came聽
same, and, am I going to teach you mathematics,聽聽
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or am I going to teach you something about聽
stock markets? The answer is very obvious,聽聽
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it's about stock markets. It's an amazing thing聽
which we learn during technical analysis, and this聽聽
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is known as Fibonacci retracement. If you want to聽
know more, let's check it out in the next section.聽
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Okay, Fibonacci sequence, it was 1300 years ago聽
that mathematicians in India had actually talked聽聽
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about this concept. It was introduced in the West聽
in one, in 1202 basically by Leonardo of Pisa,聽聽
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Fibonacci, which was a mathematician. Now let's聽
understand what is the the main logic behind聽聽
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these Fibonacci numbers. They are said to be聽
natural numbers, and what do you mean by natural聽聽
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numbers? 0 and 1 are the very base Fibonacci聽
numbers. Now how is it done? Just check this out,聽聽
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0 1 are the basic two numbers. Then we say聽
0 plus 1 is 1, 1 plus 1 is 2, 2 plus 1 is 3,聽聽
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3 plus 2 is 5, 5 plus 3 is 8, 8 plus 5 is 13, and聽
so on and so forth. So, have you understood what聽聽
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I did? I did nothing, but I added the current聽
number with the previous number. I hope we have聽聽
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understood, how the Fibonacci numbers go ahead.聽
These Fibonacci numbers, believe it or not,聽聽
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come in very much natural sequence. What do聽
I mean? These Fibonacci numbers are found in聽聽
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petals of flowers. So, majority of the flowers聽
will have either three, five, or eight petals,聽聽
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but you won't find a flower which will have,聽
number of petals, which are not a Fibonacci聽聽
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number. In fact, the cones in a pineapple also聽
follow the Fibonacci sequence. Uh, there are many聽聽
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more reference, about even breeding cycles聽
of rabbits, which also follow a Fibonacci聽聽
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sequence. I know it's very hard to believe, but聽
yes that's how a Fibonacci number sequence, can聽聽
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be found in nature as well. Now there were many聽
people, who said that if it is found in nature,聽聽
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then why can't this same logic be followed聽
in the stock market, and this same logic was聽聽
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brought into the stock market, wherein we try to聽
calculate the retracement levels, but what's the聽聽
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retracement? What is the golden ratio, is what聽
we are going to check out in the next section?
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Now, let's talk about the golden ratio, which聽
is also called as PHI. This PHI was divided, was聽聽
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actually invented by the Greeks. The name PHI was聽
invented by Greeks, but very commonly it is known聽聽
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as the golden ratio. You can see all the numbers聽
on the screen, which are the Fibonacci numbers, 1,聽聽
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2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, so on,聽
so forth. By now you have understood how these聽聽
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numbers were calculated, right. Now the question聽
is what is golden ratio? So, what you have to do聽聽
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is, you have to divide 21 by 89, or let me start聽
off in a very simple manner. Choose any number,聽聽
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I'll tell you step by step. Choose any number,聽
okay. Assume that we have chosen 89. Now step聽聽
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number one, that number divided by the same number聽
89, divided by 89, and answer is going to be one聽聽
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intelligent huh! Now, what you have to do? You聽
have to divide one number, which is immediately聽聽
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previous to that number. So, which was the number聽
immediately previous to 89, which is 55. So now聽聽
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you do 55 divided by 89. You get the ratio of聽
0.61, correct. Then skip one number, and then take聽聽
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the previous number. What, we skip 55, we take 34.聽
So, 34 by 89, and what do we get? 0.38, okay. Now聽聽
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skip two numbers in between. Which numbers did we聽
skip? 55 and 34. So, now, we do 21 by 89. Right,聽聽
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and what do we get? We get 0.23. You can follow聽
this exercise for any damn Fibonacci number. Take聽聽
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the number divided by itself, answer is going to聽
be 1. Divide the immediate previous number by that聽聽
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number which you have chosen. Your answer is going聽
to be same, which will be 0.61. Skip that number,聽聽
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take 1 number before that, divided by the number聽
that you have chosen. Your answer is going to be聽聽
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0.38. Skip 2 numbers in between, Take the聽
next one, your answer is going to be 0.23,聽聽
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and this is called as a golden ratio. Believe聽
it or not this golden ratio is found again at聽聽
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many places. In fact, it is said that even our聽
height, total height, divided by the height of聽聽
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our feet till the navel, also follows the golden聽
ratio. It's amazing to know about how golden ratio聽聽
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exists in nature, and now the big question.
How can I use this golden ratio?
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Now, let's come to the most important part, as聽
to how I can draw this Fibonacci retracement?聽聽
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but before we go to Fibonacci retracement聽
drawing part, we must understand the meaning聽聽
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of Fibonacci and retracement. Fibonacci is what?聽
Fibonacci is nothing but the number sequence,聽聽
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and I told you about the mathematician who, whose聽
name was Fibonacci, and that is why Fibonacci,聽聽
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otherwise there's no meaning. What do you mean聽
by retracement? Retracement is nothing but if聽聽
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there is a specific direction going against the聽
direction, is retracement. In stock market terms,聽聽
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if market is on a downward trend, then going from聽
downward to upward is known as a retracement.聽聽
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Oppositely if mark, in the reverse way if market聽
is in the uptrend and if market were to go down聽聽
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then it will be known as a retracement on the聽
downside. Ok till here, question is that if market聽聽
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is falling, and if we feel that oh, this might聽
be the point from which markets might retrace,聽聽
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might go up. The big question is, to go up till聽
which level? and this level can actually be聽聽
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determined by Fibonacci numbers. This is amazing,聽
and this is how I have taken a trade. I am going聽聽
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to show you the evidences, as well, how I took聽
a trade? At what level I took a trade? At what聽聽
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level I squared off? and why did I choose that聽
level to quit my position? That was absolutely聽聽
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based on one thing, and that is Fibonacci聽
numbers. So again, one more time, what is聽聽
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retracement? If markets are in a downward trend,聽
we feel that market might reverse. Retracement,聽聽
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Fibonacci retracement tells us, as to till what it聽
will retrace, till what level it will go up, okay.聽聽
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So downward to upward retracement and if markets聽
is is currently in the upward trend? Question is聽聽
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if it were to go down, till what level? That is聽
again told by Fibonacci retracement, okay. So,聽聽
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let's come to INDOT training view, there is a聽
website for you to understand it clearly. Let聽聽
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me show up the screen for you. INDOT trading聽
view. That's a free website, by the way. So,聽聽
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indottradingview.com, is the name of the website.聽
This is not a sponsored video; this is a site聽聽
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which I use often. You can definitely use聽
it too. What, so what you have to do is,聽聽
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just search nifty here, that's why nifty 50 chart聽
came up. Then go to full-featured chart. So, as聽聽
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I mentioned how can Fibonacci retracement help me聽
to take a decision? Right now if you can see here,聽聽
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I will show you how to draw it. Also I'm deleting聽
this one. Can you tell me which trend is this?聽聽
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This is clear-cut downtrend. By the way I've聽
already made a video on a poor trend, downward聽聽
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trend, and sideways trend. You can check that out聽
as well. So this this was a very clear downtrend,聽聽
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and your you can easily see a Morningstar聽
candle, right. If you want to know more about聽聽
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what's a Morningstar, please let me know in the聽
comment section, and I would be happy to make a聽聽
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separate video on that. So, a question is now聽
how to draw a Fibonacci retracement level. So,聽聽
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it's very simple here you can see on the extreme聽
left side, something like a Trishul, and I'm I聽聽
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just clicked on that, and here you can see fib聽
retracement. I'm clicking on that, now what you聽聽
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do is, you take the highest point, okay, take the聽
highest point and you join it. I'm just clicking聽聽
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on this. Join it to the lowest point. This is the聽
lowest point that you can see, right. There are聽聽
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theories here, some people say you should touch聽
the body of the candle, some people say you should聽聽
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touch the wick of the candle. By the way, what聽
is body of a candle? What is wick of the candle?聽聽
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Everything has been explained in one of my basic聽
lectures on technical analysis as well. So, right,聽聽
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now what does this signify? This signifies, now聽
can you see these these numbers 0.23, 0.38, 0.5,聽聽
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0.61, 0.78, see 0.5, just like a halfway level.聽
So, ignore that for the time being. 0.23, 0.38,聽聽
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0.5, 0.61, 0.78, what is that? That's a golden聽
ratio, yes. So, now what does it say? If markets聽聽
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are in a downward trend, at some point, it will聽
reverse, okay. Could be for a temporary phase,聽聽
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but it will reverse. Question is, reverse till聽
what, till what level? So, what I had done is,聽聽
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I had taken a trade here, after I could聽
see the Morningstar candle, and today,聽聽
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that is absolutely like within 24 hours, I squared聽
off my position with a big big profit, and what聽聽
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level did I place my order is a big question now.聽
See here you can see that the level, for 0.23, 23聽聽
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percent is 8662. So, ideally, this should be the聽
level at which the market should again retrace,聽聽
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okay. So maximum it will retrace from here till,聽
23.6 percent. So, I put a square off order at聽聽
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8600, and guess what? I booked an amazing profit.聽
Could the market have bounced till 38 percent as聽聽
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well? Answer is probably yes, possibly yes, but聽
as on the date when I'm recording the video,聽聽
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this is today, that is 26th of March, is when I'm聽
recording the video so I don't know what happens聽聽
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tomorrow. I feel that the markets might go down,聽
but again that's my feeling. I might be correct, I聽聽
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might be wrong, but at least I'm happy. I was able聽
to take an amazing trade with the help of only聽聽
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and only Fibonacci retracement. If you want to聽
know more about Fibonacci retracement in detail,聽聽
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I do have a separate lecture series on technical聽
analysis. You can check that check that out on my聽聽
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website. Which you can see right in front of you.聽
Do consider subscribing to this course. I'm sure聽聽
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it'll be of great help to you. Here you can see聽
on the screen, that's a contract note, and here聽聽
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you can see that I had bought nifty April Series聽
on 25th, that is yesterday, at a future price聽聽
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of 8292, and here you can see my today鈥檚 trade聽
wherein I squared off at 8600. Now, do you want聽聽
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to know how much profit is that? You can calculate聽
it by yourself. What you'll have to do is my聽聽
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selling price is eight six zero zero - minus my聽
buying price is eight- two- nine - two, correct?聽聽
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So that is three hundred and eight, but nifty聽
lot size is not one, It is obviously 75. So the聽聽
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profit amount comes out to twenty-three thousand聽
one hundred. Not bad, isn't it less than 24 hours,聽聽
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why not? That's the magic of technical analysis.聽
That's the magic of Fibonacci retracement. I聽聽
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hope you have enjoyed today's content. It was聽
my pleasure to present to you the Fibonacci聽聽
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retracement. It's one of my favorite tools of聽
technical analysis. This is the first video that聽聽
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I am recording from home. I don't have a green聽
screen here, I don't have my regular recording聽聽
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team with me. I have a new crew in my recording聽
team. If you can please come here to show who聽聽
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recorded this entire video? A very special guest,聽
who who helped me to record this entire lecture.聽聽
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Thank you for being patient and what are you聽
doing? I hope you have enjoyed today's video.聽聽
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Please consider subscribing to my channel.聽
That's it from my side for the day, bye bye
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