Fibonacci Fundamentals Tutorial
First of all some background on Leonardo Fibonacci…
Leonardo Fibonacci was a famous Italian mathematician who was born approximately 1170. As a young person, Leonardo traveled with his father helping him with his work and it was during this time period that he chanced upon the Hindu-Arabic numeral system.
And forthwith onto the Fibonacci numbers that traders about the world use…
Fibonacci numbers were developed by Leonardo Fibonacci and they’re merely a series of numbers that when you add together the leading two numbers you come up with the following number in the chronological ordern. Here is an example:
The ratios arise from the series: 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…
The golden ratio 1·618034 is also called the golden section or the golden average.
This series of numbers is arrived at by beginning with 1 then 2 and then summing 1 + 2 to come up with 3, the third number in the fibonacci series. Then, adding up 2 + 3 to get 5 and so forth. The numeral relationship between these fibonacci numbers is what gives us the Fibonacci retracements and expansions in technical examination trading. Beginning with the initial few numbers in the ordern, if you calculate the ratio of any number to the following higher number, you get.618. So take for example, 55 divided by 89 and you will get.618.
How do I use this fibonnaci data in Forex trading?
Forex money pairs will frequently retrace a fibonnaci ratio percent of the preceding wave before continuing a trend. Fibonacci levels:0.236, 0.382, 0.618, 0.764. are the most shared used with the 50% level also shared (but not a fib level) as Forex traders use this additional degree since the propensity of money pairs to carry on with a trend after retracing half of the former move is eminent. money traders utilize Fibonacci retracement levels as possible “sustain and resistance” zones. When clusters of these areas are found together they can be strong entry points. You won’t really need to know how to calculate all of this. Your charting software will do all the work for you.
Modern chart platforms generally include a Fibonacci retracement and extension tool. We utilize Swing Highs and Swing Lows to compute these areas which need to be obvious areas on a chart which other traders will clarify. This helps with the self fulfilling prophecy part of this kind of entry when other market participants go into as and when we do.