03.3 Fibonacci

Fibonacci

Fibonacci ratios will be used a lot in our trading.
Fibonacci arise from the following number series: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…
Fibonacci Retracement Levels0, 0.236, 0.382, 0.500, 0.618, 0.764, 1.
Fibonacci Extension Levels0, 0.382, 0.618, 1.000, 1.382, 1.618.

Fibonacci Retracement Levels 0, 0.236, 0.382, 0.500, 0.618, 0.764, 1

: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…
The key Fibonacci ratio of 61.8% – also referred to as “the golden ratio” or “the golden mean” – is found by dividing one number in the series by the number that follows it.
– For example: 8/13 = 0.6153, and 55/89 = 0.6179.
The 38.2% ratio is found by dividing one number in the series by the number that is found two places to the right.
– For example: 55/144 = 0.3819.
The 23.6% ratio is found by dividing one number in the series by the number that is three places to the right.
– For example: 8/34 = 0.2352.
Fibonacci level calculate the different between the high and low.
Then divided the zone according to the Fibonacci ratio.
0, 0.236, 0.382, 0.500, 0.618, 0.764, 1.

Why are we using Fibonacci?

Fibonacci can be treated as the golden line, everyone in the world are looking at this level.
Fibonacci will tell you the comfortable profit zone.
It is a signal for you to enter trade.
Traders use the Fibonacci retracement levels as potential support and resistance areas.
So many traders watch these same levels and place buy and sell orders on them to enter trades or place stops, the support and resistance levels tend to become a self-fulfilling prophecy.

Fibonacci Retracement Levels

To find the retracement levels, you have to find the recent significant Swing Highs and Swings Lows.
For downtrend, click on the Swing High and drag the cursor to the most recent Swing Low.
For uptrend, click on the Swing Low and drag the cursor to the most recent Swing High.

Uptrend

Downtrend

What Does Fibonacci Extensions Mean?

Levels used in Fibonacci retracement to forecast areas of support or resistance.
Extensions consist of all levels drawn beyond the standard 100% level and are used by many traders to determine areas where they will wish to take profits.
The most popular extension levels are 161.8%, 261.8% and 423.6%.

Combining Fibs with Support and Resistance

The best ways to use the Fibonacci tool is to spot potential support and resistance levels and see if they line up with Fibonacci retracement levels.

Combining Fibs with Trend Lines

Combining Fibs with Candlesticks

We can also combine Fibs with candlesticks pattern.
In combining the Fibonacci tool with candlestick patterns, we are actually looking for exhaustive candlesticks.