I use the Fibonacci sequence everyday in the technical analysis & trading of assets such as stocks, forex, and bitcoin.
The name of the indicator in trading tool charts is “Fibonacci Retracements”.
The Fibonacci sequence starts out as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and goes off to infinity.
Each number in the sequence represents the sum of the two previous numbers.
Fibonacci sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, …
For example, the number 13 in the sequence is derived by adding the two previous number (5+8=13).
In trading, assets often make some type of retracement of significant price level movements (uptrends or downtrends, moving from low-to-high points or high-to-low points on a chart).
Retracement of the price of an asset means that the price of the asset may first try to head back (retrace) towards the price from which it originally came.
For example:
If an asset’s price moves from $5 to $10 rapidly, it may try to go back (retrace) to $5 before it moves any higher than $10.
Fibonacci Retracement levels are very important for traders of assets.
These levels are often where traders make decisions about whether to take profits, buy or sell, or hold an asset.
Fibonacci Retracement levels are as follows: 0%, 23.6%, 38.2%, 50%, 61.8%, 100%.
The 50% level is not scientifically a Fibonacci retracement, but it is highly used in the technical analysis of assets.
Mathematics behind the Fibonacci retracement levels: 0%, 23.6%, 38.2%, 50%, 61.8%, 100%.
0%, 23.6%, 38.2%, 50%, 61.8%, 100%.
If an asset is at 0% retracement it either has not made any retracement back to its original price. Or it has retraced back to 0%.
Fibonacci sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, …
Levels:0%, 23.6%, 38.2%, 50%, 61.8%, 100%.
The 23.6% level is derived by dividing a Fibonacci number by, a number in the sequence that is three places to its right.
ex.(13/55)=.236 or 23.6%
Fibonacci sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, …
Levels:0%, 23.6%, 38.2%, 50%, 61.8%, 100%.
The 38.2% level is derived by dividing a Fibonacci number by a number in the sequence that is two places to its right.
ex.(13/34)=.382 or 38.2%
Fibonacci sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, …
Levels:0%, 23.6%, 38.2%, 50%, 61.8%, 100%.
The 61.8% level is derived by dividing a Fibonacci number by the number immediately to the right of it.
ex.(34/55)=.618 or 61.8%
If the asset’s price reaches the 100% level, it has moved back to its original price before the uptrend or downtrend started.
Fibonacci retracement levels are very important to traders in visualizing or support and resistance on a chart.
Support is like the floor for an asset’s price. Prices break through support when there is a strong push to go below. When an asset’s price break below support, its price go lower.
Resistance is like the ceiling for an asset. The prices don’t go through resistance unless there is a strong push to go above. When an asset’s price break above resistance its prices go higher.
Support and resistance levels often present great opportunities to buy or sell, or make decision about holding an asset.
A trader’s goal is to make a profit from trading assets.
The chart below illustrates Fibonacci retracement levels in color for Ford’s stock in 2013.
An initial decline range was picked to draw the Fibonacci retracement levels.
The stock’s price initially declined from $10.65 to $8.83. Fibonacci Retracement levels are calculated based on this initial decline.
At the end of the initial decline, price starts to increase but reaches resistance at Fib 38.2% ($9.52) and falls back to support at Fib 0% ($8.83). Traders may recognize this support level now becomes a potential buying opportunity.
Price then retrace up to Fib 50% resistance level ($8.83 to $9.75).
After a brief fall does not down to 0% support, price moves back up and breaks through the 50% and 61.8% levels.
Then price retraces back to the 50% support level again.
When price does not break below the 50% support level, an uptrend starts. Traders looking to own this stock may now see this 50% level as buy opportunity.
A break above the 100% resistance level may indicate that the Fibonacci retracement level can be reset to a newer initial point.
There is much more for you to learn about Fibonacci Retracement in combination with other indicators that help in making profits from your trades.
Look for new videos to be posted daily/weekly.
Summary: Many trading platforms include tools that will draw the Fibonacci retracement levels. These levels act as support or resistance.
Traders often use these support and resistance levels to make decisions to buy, sell or hold an asset, or to identify trends.
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