Importance of Fibonacci Retracements

Fibonacci Ratios have very important role in technical analysis. It has been generally seen that charts generally respect these ratios. History has revealed that these ratios have certain impacts on price action. The rise and fall does not move in straight line but up down movements are some of retracements only.

One can Refer wiki for how these values are calculated:
https://en.wikipedia.org/wiki/Fibonacci_retracement

Following are Fibbonacci ratios normally used:
23.6 %  - Minimum Re-tracement
38.2 % - General Re-tracement
50 %
61.8% - Golden Ratio. Most common in big moves
78.6% - Some time golden extended to 78.6
100%

Let have look at following chart of SBI. Below chart is last 8 years chart of SBI where multiple up-down moves are seen.

    We have here considered the SBI move from 2009 to 2014. SBI rallied from 88.4 to 352 in two years. Started correction from 352. Now lets check what it did at each fibonnaci retracements.

• 23.6 was straight away broken, In bigger time frame waves this ratio is generally not repected.
• 38.2 was respected but now 23.6 became resistance which resulted finally to break 38.2 as well.
• 50 % was again respected and move till 38.2 was seen but that resistance was not broken.
• 61.8 % in first attempt broken but after that it acts as a support as well but since it was broken initially so ultimately it was broken with 38.2 as major resistance.
• Final support at 78.6 with double bottom and double top at 61.8 finally this downmove ended.

Now lets see current down move in SBI along with Fibonacci retracements:

   In current down move , so far bottom has been formed near 61.8 Fibonacci , if this low is not taken out then fresh upmove can start but its not necessary. We can observe similar patterns here as well like how price behaves at various fibonacci ratios.

We can apply Fibonacci ratios to any chart and can see magic of values. Sometimes these are also called magical numbers. SBI chart was taken a random chart to demonstrate importance of these ratios.

NOTE: The above chart was only for learning purpose and not some buy/sell tip.