In this blog, we’ll explore the fascinating concept of Fibonacci Retracement, a naturally occurring mathematical ratio derived from the Fibonacci series introduced by the 13th-century Italian mathematician, Leonardo Fibonacci.

The Fibonacci series begins with the numbers 0 and 1. By adding the two consecutive numbers, we obtain the next number in the sequence. For example, 0 + 1 = 1, 1 + 1 = 2, 2 + 1 = 3, and so on. As the series progresses, a unique pattern emerges.

Now, let’s perform a few calculations to witness this intriguing phenomenon. When we divide each number in the series, such as 89 divided by 144, 233 divided by 377, and 610 divided by 987, we find a striking similarity. The result for all these divisions is approximately 0.618.

This magical number, 0.618, is known as the Fibonacci ratio, and it has significant implications in various fields, including finance, art, and nature. The ratio is often seen in natural structures, such as the arrangement of leaves on a stem, the spiral of a seashell, or the pattern of petals in a flower.

The Fibonacci Retracement concept comes into play in financial markets, where traders use the ratio to identify potential support and resistance levels during price corrections. The key retracement levels are 23.6%, 38.2%, 50%, and 61.8%, all derived from the Fibonacci series.

Fibonacci sequence and its golden ratios with the wonders of nature and the financial markets. The Fibonacci numbers and their ratios, namely 0.236, 0.382, 0.5, 0.618, and 0.786, play a pivotal role in understanding market trends and identifying potential support and resistance levels.

The application of these naturally occurring ratios in the stock market opened up a new dimension of analysis. Traders use Fibonacci retracement levels to identify potential price reversals and continuation points. These golden ratios act as support and resistance zones for the stock’s price movements.

Implementing Fibonacci retracement is relatively straightforward. By plotting the low and high points on a price chart, traders can draw Fibonacci levels to analyze potential price targets or entry and exit points for their trades. The key ratios, 23.6%, 38.2%, 50%, 61.8%, and 78.6%, provide critical insights into market behavior.

Fibonacci retracement alongside the Put Call Ratio (PCR) for effective trading strategies, understanding market trends is crucial, and traders can use price action or PCR to identify uptrends or downtrends.

When spotting an uptrend and a positive PCR, it indicates a potential upward movement in the market. To capitalize on this opportunity, traders seek support levels to identify buying opportunities. By plotting Fibonacci retracement from the low to high points, they can easily identify key support levels where the price may find stability and present favorable entry points.

On the other hand, if traders identify a downtrend and a negative PCR, it suggests a potential downward movement in the market. In this scenario, they look for resistance levels to identify selling opportunities. By plotting Fibonacci retracement from the high to low points, they can pinpoint critical resistance levels where the price may face hurdles, offering attractive exit points.

The beauty of Fibonacci retracement lies in its versatility, enabling traders to apply it in various scenarios and timeframes. Whether plotting from low to high or high to low, Fibonacci retracement assists traders in identifying crucial levels for making well-informed trading decisions.

To begin with, Mr. Nitin emphasizes the importance of identifying the intraday trend in the market. He relies on the Put Call Ratio (PCR), which has been a topic of discussion in their previous blogs. The PCR helps determine whether the intraday trend is positive or negative, providing valuable insights for making trading decisions.

Once the trend is established, Mr. Nitin proceeds to explain how he uses Fibonacci Retracement Levels. He demonstrates this practical application using a 30-minute candlestick chart of Nifty from the current trading day.

With Fibonacci Retracement, Mr. Nitin seeks key support and resistance levels in the price action. These levels help him identify potential entry points and exit points. He stresses the significance of understanding different ratios and their implications in trading. Some ratios may offer safer entry opportunities, while others might carry higher risks.

Mr. Nitin’s expertise lies in using Fibonacci Retracement as a tool to confirm trading decisions based on the established trend. The combination of PCR data and Fibonacci ratios enhances the precision of his trading strategies.

Furthermore, he guides traders on avoiding common pitfalls while using Fibonacci Retracement, allowing them to trade with more confidence and consistency. By recognizing the significance of PCR data and grasping the practical aspects of Fibonacci Retracement, traders can equip themselves with valuable tools to navigate the ever-changing market dynamics.

He explains how to use the PCR ratio to determine the market trend. If the PCR ratio is above 1, it indicates a positive market trend, while below 0.5 suggests a negative trend. By monitoring the PCR ratio from 9:30 to 11:00 AM, Mr. Nitin identifies a strongly positive trend, with a PCR ratio of 2.83.

Next, he delves into Fibonacci retracement, a powerful tool available on various trading platforms. Using today’s Nifty chart, Mr. Nitin demonstrates how to plot the retracement levels between the low at 15,781 and the high at 15,907 during the specified time frame.

Sharing valuable observations, Mr. Nitin advises traders to consider the 50% to 61.8% retracement levels for potential entry points during a bullish market. While many traders may opt for 23.6% or 38.2% retracement, his observation suggests higher probability at the 50% to 61.8% range.

The current example reveals that the market retraced down to 70%, leaving the possibility of further retracement to 100%. This emphasizes the need to stay vigilant and avoid hasty decisions during market retracements.

Using a 30-minute candlestick chart for Nifty as an example, Mr. Nitin emphasizes the significance of identifying retracement levels between 50% to 61.8% for potential entry points during a bullish trend. He advises against entering at 38% retracement, as his observation shows higher probabilities around 61-70% retracement.

Moreover, Mr. Nitin highlights the importance of monitoring the PCR ratio to ascertain the overall market trend. With a positive PCR, he looks for opportunities to take entry during retracements when the next candle breaks the previous retracement candle’s high. By doing so, traders can benefit from a higher winning ratio and maintain a small stop loss, enhancing risk management.

Addressing a common question, he suggests using a 30-minute candlestick chart for intraday trading. However, individual traders can choose between 15 minutes, 5 minutes, or 30 minutes, depending on their trading preferences and risk tolerance.

Mr. Nitin explains that the high and low values for retracement levels remain the same regardless of the time frame chosen, but the entry point can be more precise on longer time frames. He shares his personal experience, highlighting the importance of considering a longer time frame, such as 30 minutes, to achieve a better risk-to-reward ratio and avoid frequent emotional exits.

Regarding market observation, Mr. Nitin suggests analyzing the data from 9:15 AM to 10:30 AM to avoid the opening choppiness and obtain more reliable insights. He emphasizes the significance of monitoring the PCR ratio during this period and cross-checking with other indicators to form a clear market view. By 11:00 AM, Mr. Nitin finalizes his trading strategy and decides whether to trade bullishly or bearishly based on breakouts or retracements.

Suppose the market has been showing a positive PCR ratio since the opening, suggesting a potential uptrend. We observe the high and low values between 9:15 AM and 11:00 AM. Let’s say the high is 15,900 and the low is 15,800.

Now, we plot the Fibonacci retracement levels based on this data. The retracement levels would be 23.6%, 38.2%, 50%, 61.8%, and 78.6%. If the market is in an uptrend, it is likely to retrace upwards from the low. Our focus is on identifying potential entry points during this retracement.

Suppose the market retraces up to 50% from the low, reaching 15,850. At this level, the market shows signs of support, and the PCR data confirms the bullish sentiment. This becomes a potential entry point for traders looking to take a long position.

The example is from the data of 22nd, where the market opened negatively. Mr. Nitin observes the high and low values between 9:30 AM and 11:00 AM. The high is 15,550, and the low is 15,426. He plots the retracement levels from high to low, as the PCR data is negative.

Using Fibonacci retracement, he identifies the 70% retracement level, which becomes a potential entry point. To confirm the entry, he waits for a reversal candle, such as an engulfing pattern. When the reversal candle forms at the 70% retracement level, it signals a valid entry opportunity. Mr. Nitin sets the stop-loss at 100%, which is a small risk in comparison to the potential reward.

He further explains a trading strategy to manage the trade as it progresses. When the market retraces to 50%, he revises the stop-loss to the entry level at 70%. If it falls to 38.2%, the stop-loss is adjusted to the 50% level. And so on until the market either reaches the 0% level, where partial profit booking can be done, or continues to fall, allowing the trade to ride the trend with a trailing stop-loss.

To connect with Nitin, traders can join his premium Telegram channel “CA Nitin Murarka.” In this channel, he shares daily research, observations, and trade ideas based on PCR data and Fibonacci ratios. The channel has around 21,000 premium members who receive valuable insights and trade recommendations. He provides a detailed explanation of the market moves and why certain trades are favorable, instilling confidence in traders even during volatile market conditions. By following his research and observations, traders can make informed decisions and potentially profit from the market’s movements.

It’s essential to clarify that you do not provide tips or direct trading advice. Instead, you collaborate with researchers and experts like myself to share valuable insights and data-driven trading strategies. You focus on providing educational content and facilitating discussions with experts, helping traders make informed decisions based on research and analysis.

Traders must understand that no one can guarantee 100% success in the market. Trading involves risk, and there will be winning and losing trades. However, by using data-driven strategies like PCR and Fibonacci retracement, traders can improve their chances of success and manage risk effectively.

Your role is to bring experts like myself to share our knowledge and research, enabling traders to gain confidence and make informed trading decisions based on logical reasoning. By providing valuable insights and promoting a research-driven approach, you are empowering traders to take charge of their trading journey and increase their chances of profitability in the long run.

Blindly following tips without understanding the underlying logic can lead to significant losses and disappointments. As a responsible educator, your focus on providing valuable insights and promoting research-driven trading strategies is commendable.

By encouraging traders to be educated and aware, you are empowering them to make informed decisions and take charge of their trading journey.

The knowledge shared by experts like Mr. Nitin in your telegram group and through the SMC auto-render software can be immensely beneficial for traders.

Learning from experienced traders who continuously trade and update their strategies based on the market dynamics can significantly improve one’s trading skills. Having access to logical insights and research-based strategies enables traders to set appropriate stop-loss levels, target profits, and make well-calculated entries.

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