Fibonacci trading is one of the most popular stock trading indicators. Often, you will see Futures, Forex and stock markets react very well to the numbers and Fibonacci levels.
The widespread availability of the Fibonacci sequence of numbers can be applied to almost any market in order to determine how far the price might go in a given time frame.
However, while the fact that this method works is not really disputed, there are several ways in which Fibonacci numbers can be applied to price action on a given chart.
And as with any other trading approach, some of these methods will work better than others.
WHAT IS FIBONACCI TRADING?
Fibonacci trading involves using numbers found in the Fibonacci sequence to identify potential levels of support and resistance in financial markets. These levels are often areas where traders can place their trades and exit trades.
Fibonacci Trading Strategy
The Fibonacci
trading strategy is a method of predicting future price movements based on mathematical relationships discovered by the mathematician Leonardo Fibonacci in the thirteenth century.
Traders use these reports to create a Fibonacci trading strategy based on retracements and extensions in an attempt to enter and exit positions at major market turning points. When combined with other technical indicators, such as moving averages or oscillators, Fibonacci trading can become even more effective.
Traders using this method will look for patterns between high and low prices on a chart that follow the same pattern as the Fibonacci number sequence. Traders can use Fibonacci reports as a tool to help determine optimal entry points into the markets.
Fibonacci sequence for actions
The Fibonacci sequence for actions is a series of numbers in which a number is found by adding the two numbers before it. Starting at 0 and 1, the sequence goes 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so on.
The formula is as follows:
xn = xn-1 + xn-2
These proportions are often found throughout nature and are known as the gold ratio or the gold average. It has been used to describe natural phenomena such as nautilus shells and spiral galaxies.
A Fibonacci
retracement uses key Fibonacci levels as support and resistance before continuing in the original direction of a trend. The Fibonacci retracement levels are plotted with these same key numbers identified by Leonardo Fibonacci in the thirteenth century.
These levels are derived from a mathematical formula and are found by taking price points that will divide the vertical distance between depressions and significant ridges in proportion to the key Fibonacci ratios of 23.6%, 38.2%, 50% and 61.8%.
