Fibonacci Retracement
In the thirteenth century the Italian mathematician Leonardo Fibonacci came up with the Fibonacci sequence which was later named after him. The sequence begins at 0 1 1 2 3 5 8 and moves on into infinity. These numbers keep a certain relationship that appears times and again in nature. For instance in the breeding of rabbits, spirals of shells, and the curve of waves.
Many traders believe you can find level of support and resistance in the market using the ratios between the numbers.
The ratios are calculated automatically by the platform, and are called Fibonacci retracement.
Why should I use it?
The Fibonacci Retracement is very popular mostly because of its simplicity in finding good support and resistance levels, and the mystery behind the true meaning of the sequence in nature. Using it correctly can certainly provide you with great opportunities in the Forex market.
How does it look like?
The Fibonacci Retracement is composed out of 8 horizontal lines the 0% and 100% lines which represent the bottom and top of the market's movement, and the retracement levels between them, which are calculated using Fibonacci ratios.
How does it work?
When you spot an uptrend that is forming a top, mark the beginning of the trend with the 0% line, and the top price of the trend with the 100% line. When the market returns to the retracememt levels, this will be a signal to buy.
When you spot a down trend that is forming a bottom, mark the beginning of the trend with the 0% line and the bottom price of the market with the 100% line. When the market is correction up to the Fibonacci retracement leves, this will be a signal to sell.
The most popular retracement levels are the 61.8% and the 38.2% levels.
Example
In this example the market is topping around December 12, then it retraces back exactly until the 61.1% retracement line, before it takes off again. The return to the 62.8% level serves as a buy signal.
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