Fibonacci is now a widely used method of analysis employed by financial traders. In this article we take a look at the fundamental of Fibonacci trading.
However its origins lie in ancient studies. It is quite a complicated and interesting concept. Fibonacci is an additive mathematical numerical sequence. Each subsequent number is the sum of the preceding two numbers in the sequence.
From this sequence a set of ratios can be defined which can then be plotted on a financial chart. They are generally plotted from the high to the low or low to the high of a predefined move. The ratios are used to identify points of extension and retraction from the high and low of the move. These define levels where support or resistance is anticipated to occur. While this may sound complicated, the application of this technique is straightforward. All good charting packages provide a Fibonacci indicator so you can quickly plot the moves.
Typically a strong rise or fall in an assets price is a good place to start. You need to identify the high and the low of this move to be able to calculate the ratios. Most charting software will have an inbuilt Fibonacci tool.
Often this will allow you to simply drag a line between both points. The software will then calculate the correct ratios and plot as series of levels along the move. You can of course work out these levels yourself. The most common Fibonacci ratios used are These levels are widely watched by traders. They tend to work precisely because so many traders will react at these levels.
Therefore they can make for a particular strong signal when trading with binary options. Following a stall in this price rise a Fibonacci calculation is applied to the chart using the highest value that the price reached and the lowest value that it reached. Well the answer is simple. These levels are only indications and not absolutes.
Use them as a guide to help provide a new perspective to your trading. Identifying Levels To be an efficient Fibonacci trader you first need to identify a move. So how can you use this data to trade?More...