SKS Microfinance is in uptrend since August. And every time it achieves certain high and corrects sufficiently. As per my observation, correction is close to 78.6% of the previous trend. And price is close to 78.6% now.
Fibonacci has been mentioned so many times on my posts. Now lets study how Fibonacci ratio is calculated.
Following process if for calculating Fibonacci in uptrend. Downtrend will also have similar process, only thing is High value should be replaced by low value and vice versa. First understand application in Uptrend and then apply same concept at your convenience on other charts as well as in downtrend.
First step is to understand previous uptrend. As can be visible in chart posted, it started from 27-03-2015 to 08-04-2015.
So, for uptrend, we should consider low value of First date (27th Match) and High Value of last date or up-trend end date (8th March). After that you can observe free fall in SKS Micro Finance. It is nothing but profit booking by investors. These profit booking generally occurs till Fibonacci percentage levels like 38.2%, 50%, 61.8% or 78.6%. Here we will find out what is the current profit booking percentage.
First find out the difference of High and low of Last date and first date respectively as mentioned above.
High - Low = 524.95 - 414.7 = 110.25 Rs up from lowest value of previous uptrend.
From the high value of 524.95, Investors/traders started profit booking up-to the level of 435.55 today (25-04-2015)
So, High - Low of profit booking is 524.95-435.55=89.4 Rs. down from High level.
Now, we need to check, 89.4 is what percentage of 110.25.
89.4 X 100 = 81.09%
110.25
This percent is close to Fibonacci ratio 78.6%. Lets calculate how much is 78.6% of the previous trend.
110.25 is previous height of uptrend.
so, 78.6% of 110.25 comes to 86.65 Rs (means that much correction expected) Means if we deduct 86.65 from High of previous trend, we will get what we call as support price level at 78.6%.
524.95-86.65 = 438.28279 Rs.
Note: Same way, we can calculate other percentages of Fibonacci ratios
This 438.29 Rs is strong support for reversal of this stock. Right now stock closed at 439.1 which is Just above 78.6% level. So, either we can say its a good price level to enter and go long or wait for proper reversal signals. If a trader enters at this level without waiting for any reversal sign, It will be called as bottom fishing means catching the stock at lowest possible levels. But be cautious while going for Bottom Fishing and trade wit strict Stop Loss (SL), and if you are an investor, buy more on dips.
There is another view of seeing this SKS Microfinance. As we know market is in downtrend and generally stocks tends to follow market, Lets see if SKS couldn't sustain on 78.6%, where else it can get a stop.
Fibonacci has been mentioned so many times on my posts. Now lets study how Fibonacci ratio is calculated.
Following process if for calculating Fibonacci in uptrend. Downtrend will also have similar process, only thing is High value should be replaced by low value and vice versa. First understand application in Uptrend and then apply same concept at your convenience on other charts as well as in downtrend.
First step is to understand previous uptrend. As can be visible in chart posted, it started from 27-03-2015 to 08-04-2015.
So, for uptrend, we should consider low value of First date (27th Match) and High Value of last date or up-trend end date (8th March). After that you can observe free fall in SKS Micro Finance. It is nothing but profit booking by investors. These profit booking generally occurs till Fibonacci percentage levels like 38.2%, 50%, 61.8% or 78.6%. Here we will find out what is the current profit booking percentage.
First find out the difference of High and low of Last date and first date respectively as mentioned above.
High - Low = 524.95 - 414.7 = 110.25 Rs up from lowest value of previous uptrend.
From the high value of 524.95, Investors/traders started profit booking up-to the level of 435.55 today (25-04-2015)
So, High - Low of profit booking is 524.95-435.55=89.4 Rs. down from High level.
Now, we need to check, 89.4 is what percentage of 110.25.
89.4 X 100 = 81.09%
110.25
This percent is close to Fibonacci ratio 78.6%. Lets calculate how much is 78.6% of the previous trend.
110.25 is previous height of uptrend.
so, 78.6% of 110.25 comes to 86.65 Rs (means that much correction expected) Means if we deduct 86.65 from High of previous trend, we will get what we call as support price level at 78.6%.
524.95-86.65 = 438.28279 Rs.
Note: Same way, we can calculate other percentages of Fibonacci ratios
This 438.29 Rs is strong support for reversal of this stock. Right now stock closed at 439.1 which is Just above 78.6% level. So, either we can say its a good price level to enter and go long or wait for proper reversal signals. If a trader enters at this level without waiting for any reversal sign, It will be called as bottom fishing means catching the stock at lowest possible levels. But be cautious while going for Bottom Fishing and trade wit strict Stop Loss (SL), and if you are an investor, buy more on dips.
There is another view of seeing this SKS Microfinance. As we know market is in downtrend and generally stocks tends to follow market, Lets see if SKS couldn't sustain on 78.6%, where else it can get a stop.
As can be seen in the chart, trendlines (Blue line) shows bit more downside which is exactly matching the Moving average line 100. Also, MACD is not sufficiently down yet to witness bounce which generally happens after touching zero line. But its not necessary for MACD to touch zero line always for new uptrend (Bull run). RSI also can go down to 30, indicating more price fall of around 10 points can happen. Stock RSI is completely at bottom and ready to show bounce from current level.
So, for risky traders and investors, start accumulating SKS Microfinance from current levels
and Traders with lesser risk appetite can wait for price to sustain above 439 (Closing basis) tomorrow to enter long from here.
Risk yours choice yours Profit yours. Now Tips providers people might also used same type of information and with his past experience, will generate the call. If he thinks SKS Micro will follow market and go futher down, he will wait and observe movement of stock for 2 hours and according to movement, will generate call in that direction.
Note: Dont just read once and try to use this calculation on other cases directly. If possible, save it somewhere and read again while calculation. You can also use readymade calculator on following website
http://in.investing.com/forex-tools/fibonacci-calculator
I am using Netdania on Android mobile and Chartink.com for charts online on PC Browser for making charts and readymade tools as shown in images
Happy Trading!!!!!
For free Demo Trading tips. Contact on: 087 96 105447
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