Fibonacci
Beside Support/Resistance level and Trendline, Fibonacci is one of the most tools which are widely used by traders.
What is Fibonacci?
Fibonacci was an Italian mathematician born in Pisa in the 12th century. He is known to have discovered the Fibonacci numbers.
Fibonacci numbers are a sequence of numbers where each successive number is the sum of the two previous numbers
ex: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233...
What is Fibonacci ratio?
Fibonacci ratios are mathematical relationships, expressed as ratios, derived from the Fibonacci sequence. The key Fibonacci ratios are 0.382, 0.5, 0.618 and 1.618
The 0.382 ratio is derived by dividing any number in the sequence (Start from number 8) by the number that is found two places to the right
ex: 8/21~0.3809, 13/34~0.3823, 21/55~0.3818, 34/89~0.3820, 55/144~0.3819, 89/233~0.3820
The 0.618 ratio is derived by dividing any number in the sequence (Start from number 8) by the number that immediately follows it
ex: 8/13~0.6154, 13/21~0.6190, 21/34~0.6176, 34/55~0.6182, 55/89~0.6179, 89/144~0.6180, 144/233~0.6180.....
The 1.618 ratio is derived by dividing any number in the sequence (Start from number 8) by the previous number
ex: 13/8~1.625, 21/13~1.6153, 34/21~1.6190, 55/34~1.6176, 89/55~1.6181, 144/89~1.6179, 233/144~1.618
Fibonacci ratio is a golden ratio that you can find in nature all around us.
Fibonacci Retracement is the collapsing of price when it hits a certain level. If the price is moving in the Fibonacci patterns, you will find that it will be supported by the 0.328, 0.5 or the 0.618 levels and this is usually where you can take your trades waiting for reversal.
How to draw the Fibonacci level:
1) Place your cursor on a swing high
2) Drag your cursor to a swing low
Fibonacci tool works best when the market is trending. Probability of success could increase when using the Fib tool with other support and resistance levels, trend lines, and candlestick patterns for spotting entry and stop loss points.
Disclaimer
Foreign Exchange trading carries a high level of risk, and may not be suitable for all investors. Before deciding to trade any Forex Exchange financial instruments you should carefully consider your investment objectives, level of experience, and affordable risk. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with the Foreign Exchange trading, and seek advice from an independent financial advisor if you have any doubts.