Fibonacci Levels are very often used in trading for support and resistance. Traders belive that Fibonacci levels work in trading because so many traders use them that they function as a self fulfilling prophecy... Market in fact responds to the them so you should incorporate it in to your trading too...
Fibonacci numbers are a sequence of numbers beginning with 1, and then each subsequent number is the sum of the previous two.
The sum of each equation is a Fibonacci number in the sequence 1,2,3,5,8,13, and so on.
In trading Fibonacci ratios are commonly used, and the most important one is the Golden Reatio, which is diverted by noticing that each # in the Fibonacci sequence is approximately 1.618 x greater than the preceding # . Something like...
8/5 = 1.6
13/8 = 1.625
21/13 = 1.615
34/21 = 1.619
This Golden Ratio can be found in nature...in items like tree branches veins in leaves etc.... pretty cool huh?
So how do we apply Fibonacci levels to our trades?
The Golden Ratio is the primary but not only used in trading. The other common ratios used are...
0
23.6
38.2
50 (not a Fib ratio but used by traders)
61.8
76.4
100
We use these ratios as % that the market retraces against the trend, generally as levels at where they consider entering a trade in direction of the trend.
To use your Fibonacci tool in your trading software (tradingview.com or coinigy.com - free software) start with the most significant high, and then drag the tool to your significant low (or vice versa)
Fibonacci retracement ratios are common price levels at whitch the market stops retracting against the trend and continue back in the direction of the trend... the tool draws horizontal lines across the chart, indicating the price levels where the market will have retraced 23.6%, 38.2%, 50%, 61.8%, 76.4% or 100% of the price move from the high to the low you used for your Fibonacci tool.
Please refer to your software manual for details on how to use the tool on your charts...
I hope you find this post useful for your next trade and as always....Happy Trading!!!
