Fibonacci trading is becoming more and more popular, because it works and Forex and stock markets react to Fibonacci numbers and levels.
Fibonacci is the sequence of numbers discovered by Leonardo Fibonacci, an Italian mathematician: 0, 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 …….
Fibonacci numbers are started by 0, followed by 1, and then the third number is calculated through adding 0+1 (the first and the second number). Then for getting the forth number (3), the second and third numbers should be added (1+2) and …….
It was easy so far, wasn’t it?
Now if you measure the ratio of each number to the next one, you will have the Fibonacci Ratios that are the same numbers (levels) we use in our Forex or stock market technical analysis: 0.236, 0.382, 0.500, 0.618, 0.764 …….
To use these numbers in technical analysis you don’t have to make any calculations and you don’t even have to memorize them, because all trading platforms allow you to draw the Fibonacci levels and they have everything ready to use.
The only thing you should know is how to use the Fibonacci levels in the technical analysis.
Fibonacci trading means to know when and where market reverses or keeps on moving. The most important thing in Fibonacci trading is that the Fibonacci levels act as support and resistance. When the price goes up, they act as resistance levels and visa versa. Also like regular support and resistance line, when a Fibonacci level is broken as a resistance, it can act as a support and be retested. It is the same as when a Fibonacci level becomes broken as a support (it can act as a resistance then).
Why do Fibonacci levels work in forex and stock market?
What is the relationship between the currencies prices and Fibonacci numbers?
The answer is “we don’t know”. The only thing we know is that Fibonacci numbers work in everything from the microscopic materials like DNA molecule to the distance between our eyes, ears, hands, even the distance of the planets in the solar system and the way they move in the space, even the distance and pathway of the stars in the universe and finally in currencies’ prices and the way they move up and down. Fibonacci numbers can be found in everything in the world.
I don’t know why Fibonacci numbers and not any other number? But I do know why the same numbers can be found in everything: The same numbers can be found in everything, because everything is created by the same creator.
I think you have already seen the below painting by Leonardo Da Vinci (he is another Italian scientist and physician). If you draw Fibonacci levels on it (as I did) you will see how Fibonacci numbers specially the 0.618 works. They say 0.618 ratio can be seen in everything in our body in internal and external organs.