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- Fibonacci Retracements | A Guide to Using Fib Levels for

Stocks will often pull back or retrace a percentage of the previous move before reversing. These Fibonacci retracements often occur at three levels: %, 55%, and %. Actually, the 55% level really does not have anything to do with Fibonacci, but traders use this level because of the tendency of stocks to reverse after retracing half of the previous move. Here is an example using a graphic explaining the retracement pattern:

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After a stock makes a move to the upside (A), it can then retrace a part of that move (B), before moving on again in the desired direction (C). These retracements or pullbacks are what you as a swing trader want to watch for when initiating long or short positions.

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Fibonacci numbers were developed by Leonardo Fibonacci and it is simply a series of numbers that when you add the previous two numbers you come up with the next number in the sequence. Here is an example:

#### Fibonacci Retracements | A Guide to Using Fib Levels for

Check out this Fibonacci eBook. It was written by Wayne Gorman who has 75 years experience in trading, forecasting, and portfolio management. He also worked for Citibank and Westpac Banking Corporation.

Most of the time, when you draw a fib grid on a chart, you will notice that the grid lines up with support and resistance areas that you would see anyway without drawing the lines in! So you really do not need to draw the lines in. Instead, you can just look at a chart and estimate where the levels are.

So how do we identify Fibonacci patterns on a chart. Easy, we draw a Fibonacci grid (fib grid) using swing points. Here is an example:

See how when you add 6 and 7 you get 8? Now add 7 and 8 and you get 5, and so on. So how does this sequence help you as a swing trader?

Look again at the chart above of HS. If you didn't draw the Fibonacci retracement lines in, you can still tell just by looking at the chart that the stock has retraced 55% of the previous move.

This chart shows an actual trade that I made. HS pulled back into the TAZ and then formed a bullish engulfing candle right at the 55% level. That gave me the signal to go long. Nice trade!

This picture shows a graphical representation of the reversal points for stocks in an uptrend. The pattern is reversed for stocks that are in down trends.