Fibonacci_1. Fibonacci

Lesson 1: Fibonacci

Fibonacci was an Italian mathematician famous for discovering the Fibonacci
sequence. The sequence looks like this: every number in the sequence is simply the
sum of the two previous numbers. So, 1 plus 1 equals 2; 1 plus 2 equals 3. 2 plus 3
equals 5 and so on.

The sequence itself is not that important. It’s the ratio of these numbers that
matters. If you measure the ratio of any number to the succeeding higher number,
you will get 0.618. If you measure the ratio between any second number, you will get
the ratio 0.382. This is called the golden ratio or the golden mean. It can be found in
everything in nature starting from Adam and Eve’s male to female behavior ratio…

The same ratio is believed to work in the Forex market. Traders use the
Fibonacci ratios to find the potential reversal points in the market, as the price tends
to find support and resistance of these levels. The five key Fibonacci ratios are
23.6%, 38.2%, 50%,
61.8% and 100%.

In this chart you will notice that the Fibonacci retracement is considered
between the low and high - and the price starts reversing from the 61.8%
retracement. The best way to use the FIB levels is to draw separate swings towards
the end of the moves. Also, look for the levels that overlapped at these levels and
generally, they should provide stronger support and resistance

We draw the first Fibonacci from the start of the up-trend all the way up to the
most recent high. Then we draw the second Fibonacci from the most recent swing
low to the most recent swing high. Both the Fibonaccis will have an overlap at a
point which is considered to be a strong support; now, you can either wait for the
price to retrace this level to go long - or, if you are already long, you can put your
protective stops under this level.