What Are Fibonacci Levels And How To Use Them?
First of all let’s start with the Fibonacci numbers, not to be confused with the golden ratio which are also used within trading platforms.
The creator of the Fibonacci numbers was a man named Leonardo Pisano Bigollo, widely acclaimed as the most influential western mathematician of the middle ages. He was given his nickname “Fibonacci’ by the French historian Guilaume Libri.
Basically the Fibonacci numbers or sequence is characterized by the mere fact that every number after the first two is the sum of the preceding two numbers.
Known as Fibonacci Retracements’, these are used by traders to identify potential reversals. It is a method of technical analysis for making educated decisions on when the market will rise or fall, inflate or deflate, peak or trough. It is loosely based on the idea that markets will always follow or retrace predictable patterns.
Now it is important to remember that this is by no means a bullet proof plan to get into markets or to trade off stocks, purely on the premise that it will go the way you planned or that it will even follow a similar path. The Fibonacci levels are widely used to found slots within a chart to enter at the lowest price thereby increasing profit gain,
Fibonacci retractments are used to identify the end of a correction or a counter-trend bounce. They retrace a portion of the prior move from short retractments of 23.6% to 61.8% often rounded to 62% which covers more possibilities.
For example; 0.0% is considered to be the start of the retractment, whereas 100% is considered to be the complete reversal to the original start. There is no reliability standard retractment, not 50%, 33%, 38% none are guaranteed. It is not an official retractment but based on the down theory. It is based on the trends, the peaks and troughs of your specific chart. You should use lines on multiple charts in order to see overall market growth or decline No one will have the same peaks or troughs as we start our analysis at different times. However the basic use of percentages will not change. The Fibonacci Sequence is static and does not differ like various other methods.
So to recap, Fibonacci Retractment, take a major peak and a trough on your chart and divide the vertical distance by the key Fibonacci ratios. Once you have identified these draw horizontal lines to gauge possible support and resistance levels.