What is Fibonacci retracement?
- "In , is created by taking two extreme points (usually a major peak and trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%." - Investopedia
is a ratio that can help you determine a buy/sell strategy after a pullback ( drop ). It is best utilized after a huge drop in market valuation.
In the following image, I have put together an example of the tool in Tradingview.
How to use Fibonacci retracement:
Step 1: Find an asset that has recently made a huge drop in market valuation, and seems to be back on an uptrend.
Step 2: Select the tool located in the tools panel on the left.
Step 3: Click once on the previous peak where the price spiked, then move your mouse down to the current price and go over to the right to click a point on the chart that you want to have all your shares sold by (endpoint).
Now that you have your setup, the idea is to sell 25% of your initial investment at each of these levels indicated by the tool: .38, .50, .61, and 1.0.
REMEMBER: Be disciplined. Determine a 'stop limit' of when you want to sell your shares if the value of your holdings goes down and set an alert. Nobody likes to sell after a decrease in valuation; however, you always want to keep your shares 'active' and avoid owning depreciated shares over a long period of time.
Thanks for reading, and happy trading!