Guide to use of Fibonacci Tool - Part 1

Fibonacci is most important tool for Price Action analyst. Often people get confused in using this powerful tool therefore below is guide on how to apply Fibonacci correctly on charts.

In the chart, I have explained 3 use cases of uptrend, downtrend & Intraday scalping using Fibonacci.

Use Case 1 - Uptrend
Stock/Index is in uptrend when it is forming higher low & higher high. In such cases, Fibonacci can be applied by drawing it from a swing low & swing high & checking if following retracement is respecting any of the levels. If levels are respected to certain degree and stock is bouncing back, then there is possibility that it can reach extension level of 1.27 or 1.6.
Chart given in this use case is VEDL and Fibonacci is applied in Daily time frame.

Use Case 2 - Down trend
Stock/Index is in downtrend when it is forming lower low & lower high. In such cases, Fibonacci can be applied by drawing it from a swing high & swing low & checking if following retracement is respecting any of the levels. If levels are respected to certain degree and stock is bouncing back, then there is possibility that it can reach extension level of 1.27 or 1.6.
Chart given in this use case is NIFTY and Fibonacci is applied in Daily time frame.

Use Case 3 - Intraday Scalping
Fibonacci is can be power scalping tool specially in BANKNIFTY where it can be applied in lower time frames like 3/5 mins. If stock/index after an up-move or down-move is giving a retracement then we should apply Fibonacci using day start as starting point & day high/low as point 2. If retracement is following any Fibo levels (specially 0.61 or 0.38 for BANKNIFTY), then if it is able to break previous peak there is a possibility that it will reach next extension level i.e 1.27 or 1.6
Chart given in this use case is of BANKNIFTY and Fibonnaci is applied in 3 min time frame.

Some Important Facts about Fibonacci
1. It has universal application i.e. it can be used for stock, index, crypto, commodity & forex.
2. Fibonacci works picture perfect in crypto. (tried & tested over hundreds of chart).
3. It can be applied in all time frames from 1 min scalping to 1 month chart.
4. Fibonacci should be used along with support & resistance analysis. As I use it as confirmation tool.
5. Retracement as show in all examples should follow fibonacci levels to good accuracy before we trade for extension levels. If levels are not respected, there is no point in trading/confirming based on it.
6. It looks complicated for beginners as they struggle to identify point 1 & 2 in real time but with practice it is easy to apply & bring great result.
7. I have shown only handful of levels to keep example clean. There are many other retracement & extension levels and each stock/index respect different levels.

Hope this guide help in learning. Kindly try practicing it & share your questions in the post.

Happy learning

Thanks
Piyush Gupta
Learn & Earn