Fibonacci ratios is used a lot in our trading so you better learn it and
love it like your mother’s home cooking. Fibonacci is a huge subject and there
are many different Fibonacci studies with weird-sounding names but we’re going
to stick to two: retracement and extension.
Lets come to start introducing you to the Fib man himself…Leonardo Fibonacci.
Leonardo Fibonacci, a famous Italian mathematician isn’t actually famous chef. He had an “Aha!” moment when he discovered a simple series of numbers that created ratios describing the natural proportions of things in the universe.
The ratios arise from the following number series: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…
This series of numbers is derived by starting with 0 followed by 1 and then adding 0 + 1 to get 1, the third number. Then, adding the second and third number (1 + 1) to get 2, the fourth number, and so on.
After the first few numbers in the sequence, if you measure the ratio of any number to the succeeding higher number, you get .618. For example, 34 divided by 55 equals .618.
If you measure the ratio between alternate numbers you get .382. For example, 34 divided by 89 = 0.382 and that’s as far as into the explanation as we’ll go.
These ratios are called the “golden mean”. Okay that’s enough mumbo jumbo. With all those numbers, you could put an elephant to sleep. We’ll just cut to the chase; these are the ratios you HAVE to know:
You may not really like to learn how to calculate all of this. No problem,. Your charting software will propel all the work for you. Besides, we’ve got a nice Fibonacci calculator that can magically calculate those levels for you. However, it’s always good to be familiar with the fundamental theory behind the indicator so you’ll be able to learn to impress your date.
Traders use the Fibonacci retracement levels as potential support and resistance areas. As, so many traders watch these same levels and place buy and sell orders on them to enter trades or place stops, the support and resistance levels tend to become a self-fulfilling prophecy.
Traders need to use the Fibonacci extension levels as profit taking levels. Again, since so many traders are watching these levels to place buy and sell orders to take profits, this tool tends to work more often than not due to self-fulfilling expectations.
Most charting software includes both Fibonacci retracement levels and extension level tools. In order to apply Fibonacci levels to your charts, you’ll need to identify Swing High and Swing Low points.
A Swing High is a candlestick with at least two lower highs on both the left and right of itself.
A Swing Low is a candlestick with at least two higher lows on both the left and right of itself.
You have learnt all that? Don’t be worry. We shall analyze and make you visualized retracements, extensions, and most importantly, how to grab some pips using the Fibonacci tool in the following lessons later.
Lets come to start introducing you to the Fib man himself…Leonardo Fibonacci.
Leonardo Fibonacci, a famous Italian mathematician isn’t actually famous chef. He had an “Aha!” moment when he discovered a simple series of numbers that created ratios describing the natural proportions of things in the universe.
The ratios arise from the following number series: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…
This series of numbers is derived by starting with 0 followed by 1 and then adding 0 + 1 to get 1, the third number. Then, adding the second and third number (1 + 1) to get 2, the fourth number, and so on.
After the first few numbers in the sequence, if you measure the ratio of any number to the succeeding higher number, you get .618. For example, 34 divided by 55 equals .618.
If you measure the ratio between alternate numbers you get .382. For example, 34 divided by 89 = 0.382 and that’s as far as into the explanation as we’ll go.
These ratios are called the “golden mean”. Okay that’s enough mumbo jumbo. With all those numbers, you could put an elephant to sleep. We’ll just cut to the chase; these are the ratios you HAVE to know:
Fibonacci Retracement Levels
0.236, 0.382, 0.500, 0.618, 0.764Fibonacci Extension Levels
0, 0.382, 0.618, 1.000, 1.382, 1.618You may not really like to learn how to calculate all of this. No problem,. Your charting software will propel all the work for you. Besides, we’ve got a nice Fibonacci calculator that can magically calculate those levels for you. However, it’s always good to be familiar with the fundamental theory behind the indicator so you’ll be able to learn to impress your date.
Traders use the Fibonacci retracement levels as potential support and resistance areas. As, so many traders watch these same levels and place buy and sell orders on them to enter trades or place stops, the support and resistance levels tend to become a self-fulfilling prophecy.
Traders need to use the Fibonacci extension levels as profit taking levels. Again, since so many traders are watching these levels to place buy and sell orders to take profits, this tool tends to work more often than not due to self-fulfilling expectations.
Most charting software includes both Fibonacci retracement levels and extension level tools. In order to apply Fibonacci levels to your charts, you’ll need to identify Swing High and Swing Low points.
A Swing High is a candlestick with at least two lower highs on both the left and right of itself.
A Swing Low is a candlestick with at least two higher lows on both the left and right of itself.
You have learnt all that? Don’t be worry. We shall analyze and make you visualized retracements, extensions, and most importantly, how to grab some pips using the Fibonacci tool in the following lessons later.
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