How to successfully utilize the Fibonacci retracement tool.

A beginners guide to Fibonacci retracement.

What is Fibonacci retracement?
- "In technical analysis, Fibonacci retracement 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

In english?
Fibonacci retracement 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 Fibonacci retracement 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 Fibonacci retracement 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 Fibonacci retracement setup, the idea is to sell 25% of your initial investment at each of these levels indicated by the Fibonacci retracement 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!