Fibonacci Retracement

by Barry Burns

Fibonacci Retracement



Fibonacci Retracement trading is used in all markets – online stock trading, Fibonacci Forex trading and also in the futures markets.

Whether or not one believes the Fibonacci trading numbers have any special significance, the fact that they are so pervasively used creates a self-fulfilling prophecy to the levels. Thus, for whatever reason you choose to believe, Fibonacci retracement levels are an important part of technical analysis and should be incorporated into your trading system.

Using Fibonacci retracements in your trading will not make you a professional swing trader, day trader or investor overnight. But used in conjunction with other technical analysis tools such as stochastics, RSI, MACD, moving averages, candlestick patterns, etc., they can be a very valuable addition to any traders tool box.

Another powerful aspect of Fibonacci trading is that the retracement levels are robust. They can be used in day trading, swing trading and investing all markets: Forex, stocks, futures and commodities. Their measurements are relative and adjust to whatever market and time frame you are using in your Forex, futures or stock market analysis.

Enjoy the video below on Fibonacci retracement levels. It provides a good introduction to the topic, but was also created to answer the most common questions I receive about Fibonacci trading.

Please let me know what you think of the video, ask questions, and leave any and all comments below. I cherish your feedback and look forward to reading it. Simply click on the word “Comments” under the social media icons below.

FIBONACCI RETRACEMENT TRADING

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Fibonacci Retracement Trading


As explained in my previous article, Fibonacci retracement levels are the basis for Fibonacci trading and an important part of technical analysis and stock market analysis.

Fibonacci Forex, futures and stock markets can be used for day trading, swing trading and investing.

However the numbers from the Fibonacci sequence (see previous article for a list of those numbers and how they are derived) are not directly used in trading Fibonacci retracement. It’s actually the “Fibonacci Ratios” that are used.

Those ratios are:

  • 0.618 (derived by dividing any number in the sequence by the number that is one place to the right).
  • 0.382 (derived by dividing any number in the sequence by the number that is two places to the right).
  • 0.236 (derived by dividing any number in the sequence by the number that is three places to the right).

In a technical analysis trading system these ratios are often printed as Fibonacci retracement levels in terms of percentages:

  • 61.8%
  • 38.2%
  • 23.6%

Despite their common usage, 50% and 76.4% (or some traders use 78.6%) are not Fibonacci ratios.

The most important Fibonacci ratio is 0.618 and is found by dividing any number in the sequence by the number that immediately follows it. This is often referred to as the golden ratio or the golden mean.

The use of Fibonacci retracement levels in online stock trading, stock market analysis (as well as futures, Forex, etc.) serves to help determine how far one expects a market to retrace before continuing in the direction of the trend.

This is based on the fact that in day trading, swing trading and investing, the markets do not trend in a single direction without wavering. Rather they tend to oscillate (often measured by stochastics).

Many doing Fibonacci Forex trading (as well as those doing online stock trading and futures trading) therefore look for a trending market to pull back to a Fibonacci retracement level as a place to enter the market before it continues in the direction of the original trend.

A simple pull back to a Fibonacci retracement level does not make for a complete Fibonacci trading system however. It must be combined with other technical analysis tools such as a moving average, stochastics, etc. in order to help determine which of the levels the market will pull back to and hold.

Please let me know what you think of the video, ask questions, and leave any and all comments below. I cherish your feedback and look forward to reading it. Simply click on the word “Comments” under the social media icons below.

Fibonacci retracement on Forex

Fibonacci retracement to the 23.6% level on the EURUSD

Fibonacci retracement to the 50% level on AAPL

Fibonacci retracement to the 50% level on AAPL

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Fibonacci Trading

by Barry Burns

Fibonacci Trading



Fibonacci trading is extremely popular among those who use technical analysis for online stock trading, stock market analysis, swing trading, day trading and all types of trading systems. Fibonacci retracement measurements are the most popular use of the numbers.

It is often used with other technical analysis indicators such as a moving average, stochastics, RSI, candlestick patterns, etc.

When using Fibonacci Forex, stocks, futures and commodities can all be traded using the Fibonacci retracement of a trend.

So what is “Fibonacci” and where does it come from?

The Fibonacci sequence is named after a man named Leonardo of Pisa, who was known as “Fibonacci” (which means “son of Bonaccio”).  He wrote a book in 1202 which introduced the sequence of numbers to Western European mathematics (though the sequence had been known and used in India well before Fibonacci).

The Fibonacci sequence is simply beginning with the numbers 0 and 1, and then each number after that is the sum of the previous two.

So …

0 + 1 = 1

Then you take the sum of the last 2 numbers of the above equation and add them:

1 + 1 = 2

Then you take the sum of the last 2 numbers of the above equation and add them:

1 + 2 = 3

Then you take the sum of the last 2 numbers of the above equation and add them:

2 + 3 = 5

Then you take the sum of the last 2 numbers of the above equation and add them:

3 + 5 = 8

Then you take the sum of the last 2 numbers of the above equation and add them:

5 + 8 = 13

Then you take the sum of the last 2 numbers of the above equation and add them:

8 + 13 = 21

… and on it goes to infiinity!

So the Fibonacci numbers are:

1,  2,  3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, etc.

So what is the significance of these numbers for stock market analysis, swing trading, technical analysis and trading systems? And is Fibonacci trading legitimate?

Fibonacci numbers have many ramifications and applications in the field of mathematics. Those who feel that the stock market, Forex and futures markets operate in mathematical precision are attracted to Fibonacci trading and look for Fibonacci retracement levels for this reason.

“Fib numbers” (as they are often referred to) also appear in many aspects of nature such as the arrangement of leaves on a stem and the branching of trees. Some day traders, swing traders and investors therefore say that the nature of the financial markets also manifest themselves in the structure of Fibonacci numbers.

Now the big question: Do Fibonacci numbers have a dramatic influence on the financial markets? Should you use Fibonacci trading in your trading system to help with your stock market analysis?

It’s impossible to prove. However there is no question that Fibonacci trading has become wide-spread in the use of technical analysis, taking a prominent seat next to other commonly used techniques such as moving averages and stochastics.

Therefore Fib numbers are indeed significant in trading if for no other reason than they become a self-fulfilling prophecy through their use by a massive number of Fibonacci Forex, stock and futures traders. And those numbers can be used to calculate Fibonacci retracement levels, which I’ll address in more detail in future articles.

Please let me know what you think of the video, ask questions, and leave any and all comments below. I cherish your feedback and look forward to reading it. Simply click on the word “Comments” under the social media icons below.

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