HOW TO TRADE WITH FIBONACCI RATIO

The Fibonacci ration was given by an Italian mathematician named Leonardo Fibonacci. Fibonacci gave a theory which he called the Fibonacci series (1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…….) , this series he used to calculate the natural proportion of things in the universe, each number in the series is called a Fibonacci number.

In the series if I divide 34 by next number 55 it will be 0.618. And if I divide 34 by the number after 55 in the series, 89 what I will get is, 0.382.

I know I may have lost some people back there, or some people may read this and say I'm lost maybe they know it more than me.

 the numbers above are called the Fibonacci ration and the ratio’s 0.618 and 0.382 are known as golden means.

Fibonacci ratio is divided in two parts

<    1. Fibonacci retracement levels

<    2. Fibonacci extension levels

To fully understand what Fibonacci ratio is I need to show a chart, O well since I don’t that have a chart I will use the next best thing.

Fibonacci retracement levels: to find the retracement level on a plate form I would click on a significant swing low (swing low is a candle stick with at least two higher lows on both the left and right) and drag the cursor to the most recent swing high (swing high is a candle stick with at least two lower highs on both the left and right of itself). These are the numbers I may see 0.236, 0.382, 0.500, 0.618, 0.764.

Retracement levels are very important because one, the forex market usually finds temporary support during an up-trend or resistance during a down trend and two, this may be good trading spots to long or to short on a trade.

Fibonacci extension levels: to find the extension level on a  plate form I would have to use three clicks. First, I will click on a significant swing low, second, drag my cursor and click on the most recent swing high, third, drag my cursor back down and click on the retracement swing low. These are the numbers I may see 0, 0.382, 0.618, 1.000, 1.382, 1.618.

Fibonacci extension levels are very important because the  market usually finds at least temporary resistance at these levels and traders use Fibonacci extension levels as profit taking levels.

Thank you for reading this boring article.