Fibonacci

• Fibonacci

  Fibonacci retracements are a popular form of technical analysis used by traders in order to predict future potential prices in the financial markets. If used correctly, Fibonacci retracements and ratios can help traders to identify upcoming support and resistance levels based on past price action.

• What is Fibonacci in trading?

  Leonardo Fibonacci was a mathematician born in 1170 AD. From his work, we get the Fibonacci sequence of numbers, and also the well-known Fibonacci golden ratio. The Fibonacci sequence is a series of numbers where the next number is simply the sum of the two preceding numbers. So for example, it would run 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and so on, with the sequence continuing indefinitely.

• Fibonacci’s golden ratio example

  In financial markets, the Fibonacci golden ratio has the same mathematical base as the natural phenomena mentioned above. When traders use the golden ratio in their technical analysis, the ratio is usually translated into three percentages: 38.2% (often rounded to 38%), 50% and 61.8% (usually rounded to 62%). Having said that, traders can use more multiples when necessary, such as: 23.6%, 161.8%, 423%, 684.4% and so on.

• The 38.2% ratio is found by dividing one number in the series by the number two places to the right. For example, 21 divided by 55 equals 0.382. The 23.6% ratio divides one number in the series by the number three places to the right. For example, 8 divided by 34 equals 0.235.

• How to use Fibonacci retracements

  Fibonacci retracement lines can be created when you divide the vertical distance between the high and low points by the key Fibonacci ratios. Horizontal lines are drawn on the trading chart at the 23.6%, 38.2% and 61.8% retracement levels. Some traders also like to use the 50.0% ratio. This is not really a Fibonacci ratio, but it can be useful. Often a security will retrace by around 50% before continuing its original trend.