• Invest
    Investment Suite
    Stocks
    Mutual Funds
    Future and Options
    IPO
    Exchange Traded Funds
    Commodity
    Stockcase (Stock Baskets)
    Currency
    Non Convertible Debentures
    Sovereign Gold Bond
    Exclusive
    NRI Account
    Private Client Group
    Features
    SipIt
    MTF
    Investment Suite
    Exclusive
    Features
  • Platform
    Product Suite
    Kotak Neo App & Web
    Nest Trading Terminal
    NEO Trade APIs
    Features and Tools
    MTF
    Securities Accepted as Collateral
    Margin Requirements
    Payoff Analyzer
    Calculators
    SIP Calculator
    Lumpsum Calculator
    Brokerage Calculator
    Margin Calculator
    MTF Calculator
    All Calculators
    Product Suite
    Features and Tools
    Calculators
  • Pricing
  • Research
    Research Calls
    Long Term calls
    Short Term calls
    Intraday calls
    Derivatives calls
    Pick of the week
    Top Monthly Picks
    Research Reports
    Fundamental Research Report
    Technical Research Report
    Derivative Research Report
    Research Calls
    Research Reports
  • Market
    Stocks
    Market Movers
    Large Cap
    Mid Cap
    Small Cap
    Indices
    Nifty 50
    Bank Nifty
    FinNifty
    Nifty Midcap India
    VIX
    All Indian Indices
    Mutual Funds
    SBI Mutual Funds
    HDFC Mutual Funds
    Axis Mutual Funds
    ICICI Prudential Mutual Funds
    Nippon India Mutual Funds
    All AMC's
    IPO
    Upcoming IPO
    Current IPO
    Closed IPO
    Recently Listed IPO
    Stocks
    Indices
    Mutual Funds
    IPO
  • Learn
    Resource
    Market Ready
    Kotak Insights
    Infographic
    Podcast
    Webinars
    Youtube Channel
    Quarterly Results
    Investing Guide
    Demat Account
    Trading Account
    Share Market
    Intraday Trading
    IPO
    Mutual Funds
    Commodities
    Currency
    Futures & Options
    Derivatives
    Margin Trading
    Events
    Budget 2024
    Muhurat Trading
    Share Market Holiday
    Market Outlook 2024
    Resource
    Investing Guide
    Events
  • Partner
    Business Associates
    Fund Expert
    Kotak Connect Plus
    Startup connect
  • Support
    FAQs
    Circulars
    Bulletins
    Contact Us
    Forms Download
    Get your Statement
​

Here's How To Use Golden Ratio And Fibonacci Sequence In Trading

  •  4m
  • 0•
  • 18 Apr 2023

The Golden ratio--1.618--is derived from the Fibonacci sequence, named after its Italian founder, Leonardo Fibonacci. In the sequence, each number is simply the sum of the two preceding numbers (1, 1, 2, 3, 5, 8, 13, and so on). When further translated into percentages, this ratio can be used in the stock analysis and mainly uses four techniques: Fibonacci retracement, arcs, fans, and time zones.

In technical analysis, the golden ratio is typically translated into three percentages: 38.2 per cent, 50 per cent, and 61.8 per cent, which are considered key retracement levels for a stock or an index. However, more multiples can be used when needed, such as 23.6 per cent, 161.8 per cent, 423 per cent, and so on.

The retracement levels of 38.20 per cent, 50 per cent, and 61.80 per cent are considered as key support and resistance in the financial market. These assist in delivering conviction, by identifying support and resistance levels of a trend. The retracement is drawn considering the high and a low points of a rally. These are horizontal lines which guide in recognizing the buying and selling momentum. Typically, this phenomenon is plotted on daily, weekly, and monthly charts.

Another way of plotting the support and resistance levels is through 'Arcs'. This structure represents half circles that intersect with the high and low line at 38.2 per cent, 50 per cent, and 61.8 per cent. The shape of a circle is wider when the rally is big. As this form is in a circular shape, the price indicates similar move on support and resistance.

Fibonacci fans are diagonal lines spread within the high and low. These lines look like trendlines plotted on 38.20 per cent, 50 per cent, and 61.80 per cent retracement. Whenever the stock moves out of those diagonal lines on the higher side, the trend is set to be on strong breakout.

Fibonacci Time Zones are vertical lines that analyse the time period or duration where the maximum price momentum can be visible. This can span to a longer period, and the bigger the duration more potent is the momentum. The analysis of Time zones enables one to eradicate drastic volatility, resulting in a steady price movement.

The idea behind the Fibonacci sequence is to determine the support and resistance levels as this enhances the conviction and develops appropriate buying and selling behaviour. When combined with other technical indicators, it helps in furnishing a substantial view on the trade. In a trending market, candlestick patterns evolving around these ratios assist in entering and exiting trades from a medium-term perspective. When volume shows volatility around support and resistance, the strength and momentum appears to enter a new phase.

Did you enjoy this article?

0 people liked this article.

What could we have done to make this article better?

Read Full Article >
Enjoy Zero brokerage on ALL Intraday Trades
+91 -

personImage
Enjoy Zero brokerage on ALL Intraday Trades
+91 -