Forex Fibonacci Studies, Retracements, Arcs & Projections
Learn Why Fibonacci Numbers Work
See Why Fibonaccis (aka Fibs) Are So Powerful
The Fibonacci Studies
The use of Fibonacci numbers in Forex trading has become increasingly popular in recent years. It does not take long when looking at charts to see several examples of Fibonacci retracements. On numerous occasions I have watched analysts making market predictions on T.V. shows. I will often check the charts about what they discussed. Some of the predictions for new price levels are dead on Fib. retracement numbers. I became fascinated with fibs so decided to pick up Fibonacci Trading. The graphical examples are perfect for learning how to spot these patterns. Fibonacci is just another tool we use when trading. When using proven trading strategies like the Fibonacci Trading. Fibs are a great way to validate entry and exit points for each and every trade.
Fibonacci numbers, as with all technical indicators (technical analysis) should not be used by themselves. They should be combined with other indicators to make a complete system to trade with. I do believe that Fibonacci numbers should be a part every traders list of indicators. They do seem to be extremely accurate, This could possibly a self fulfilling prophecy. If enough people believe it, they will cause it to hold true.
When used in technical analysis, the golden ratio is typically translated into three percentages: – 38.2%, 50% and 61.8%. However, more multiples can be used when needed, such as 23.6%, 161.8%, 423% and so on. There are four primary methods for applying the Fibonacci sequence to finance: retracements, arcs, fans and time zones.
Some Background Information About Fibonacci
Leonardo Fibonacci was an Italian mathematician born in the 12th century. He is known to have discovered the "Fibonacci numbers," which are a sequence of numbers where each successive number is the sum of the two previous numbers.
e.g. 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.
These numbers possess a number of interrelationships, such as the fact that any given number is approximately 1.618 times the preceding number.
1. Fibonacci Retracements
Fibonacci retracements use horizontal lines to indicate areas of support or resistance. They are calculated by first locating the high and low of the chart. Then five lines are drawn: the first at 100% (the high on the chart), the second at 61.8%, the third at 50%, the fourth at 38.2%, and the last one at 0% (the low on the chart). After a significant price movement up or down, the new support and resistance levels are often at or near these lines. See the chart below, which illustrates some retracements:
2. Fibonacci Arcs
Finding the high and low of a chart is the first step to composing Fibonacci arcs. Then, with a compass-like movement, three curved lines are drawn at 38.2%, 50% and 61.8%, from the desired point. These lines anticipate the support and resistance levels, and areas of ranging. See the chart below, which illustrates how these arcs do this:
3. Fibonacci Fans
Fibonacci fans are composed of diagonal lines. After the high and low of the chart is located, an invisible vertical line is drawn though the rightmost point. This invisible line is then divided into 38.2%, 50% and 61.8%, and lines are drawn from the leftmost point through each of these points. These lines indicate areas of support and resistance. See the chart below:
4. Fibonacci Time Zones
Unlike the other Fibonacci methods, Fibonacci time zones are a series of vertical lines. They are composed by dividing a chart into segments with vertical lines spaced apart in increments that conform to the Fibonacci sequence (1, 1, 2, 3, 5, 8, 13, etc.). These lines indicate areas in which major price movement can be expected:
Fibonaccis are a very useful tool for forex traders and every trader should learn to use them.