Recently, market participants have become rather familiar with Fibonacci trading, because it appears to be very beneficial and Forex market or stock market, react well to Fibonacci numbers and levels. Fibonacci is series of numbers discovered by the Italian mathematician Leonardo Fibonacci.
These numbers start with 0 and 1, then any following number is calculated as we add the previous numbers. For example the third Fibonacci number would be 1 (0+1), the fourth one would be 2 (1+1), the fifth number would be 3 (1+3) and so on and so forth.
Here are some of them: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, 6765, 10946, 17711, 28657, 46368, 75025, 121393 …….
Analogically, if you measure the ratio of each number to the next one, you would have the Fibonacci Ratios that are the same numbers (levels) that market participant use in Forex or stock market technical analysis: 0.236, 0.382, 0.500, 0.618, 0.764…….
In order to use these numbers in technical analysis you do not need to make any calculations. You are not even required to memorize them, because all the trading platforms offer the Fibonacci levels and they are completely ready for usage.
However, you are supposed to know how to use the Fibonacci levels in the technical analysis.
Fibonacci trading denotes knowing when and where market changes its direction to keeps on moving. The most important thing in Fibonacci trading is that the Fibonacci levels have the role of support and resistance. When the price moves up, they act as the resistance, when the price moves down, they act as support. Besides, similar to the usual supports and resistances, when a Fibonacci level is broken as a resistance, it can act as a support and to be retested. Analogically, when a Fibonacci level becomes broken as a support, it can be a resistance.
Actually, Fibonacci numbers could be found anywhere in the world. Hardly is there anyone who does not know the famous painting by Leonardo Da Vinci. If you draw the Fibonacci levels on it, you would be able to see how the Fibonacci numbers, especially the 0.618 works. It is believed that 0.618 ratio could be seen in everything in our body, in the internal and external organs.
Expect more articles on this theme.