Today dear Hivians we continue with the second lesson of the basic finance course, we are going to look at a fundamental tool for finance and analysis, I'm talking about the Fibonacci method, one of the most widely used tools by various traders to understand market prices and trends.
But let's see who Leonardo Fibonacci was:
Fibonacci was an Italian mathematician of the 13th century, known mainly for introducing in Europe the sequence of numbers that now bears his name, namely the Fibonacci sequence. This sequence is composed of a series of numbers in which each subsequent number is the sum of the two preceding numbers: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, etc.
Source CCO: https://pixabay.com/it/photos/pensione-bambino-scuola-figli-1666644/
The Fibonacci sequence has numerous applications in mathematics, science, and finance. For example, the ratio between two successive numbers in the Fibonacci sequence (e.g. 21/13 or 55/34) approximates the "golden ratio" or "golden section", a mathematical ratio that is considered aesthetically pleasing and harmonious. In addition, the Fibonacci sequence is often used in the technical analysis of financial markets, as we have seen before.
The Fibonacci method is a mathematical approach used in technical analysis to identify potential price reversal points of assets. It is based, as mentioned before, on the Fibonacci sequence of numbers, a series of numbers where each number is the sum of the two preceding ones (1, 1, 2, 3, 5, 8, 13, 21, etc.).
In technical analysis, the Fibonacci method is used by drawing horizontal lines on the price chart based on support and resistance levels. These levels are calculated using ratios between the numbers of the Fibonacci sequence, such as 38.2%, 50%, and 61.8%.
The idea is that asset prices may follow these support and resistance levels, giving traders and investors an idea of where prices could reverse or continue to move in a certain direction.
In summary, the Fibonacci method is a mathematical approach used in technical analysis to identify potential price reversal points of assets. It is used to draw horizontal lines on the price chart based on support and resistance levels, which are calculated using ratios between the numbers of the Fibonacci sequence. This method can be used as part of financial analysis to help traders and investors make more informed investment decisions.
The Fibonacci method can be used in combination with a wide range of financial instruments, including stocks, bonds, commodities, currencies, and cryptocurrencies. In general, it can be useful for analyzing any financial instrument that has a price chart.
For example, forex traders often use the Fibonacci method to identify support and resistance levels in currency pairs, which can be used to make trading decisions. Commodity investors, such as those in oil and gold, can use the Fibonacci method to identify significant price levels and set price targets.
In summary, the Fibonacci method can be used with any financial instrument that has a price chart, and can help investors identify support and resistance levels, set price targets, and make trading decisions.
Alright dear readers, that's it for this lesson, stay tuned for the next lessons of the basic finance course. Until next time.
