introduction
Introduction to Fibonacci Numbers
The Fibonacci series of numbers are
1 , 1 , 2 , 3 , 5 , 8 , 13 , 21 , 34 , 55 , 89 , 144 ,…
The numbers are calculated simply by adding the two previous numbers together.
E.g. 3 + 5 = 8
5 + 8 = 13
8 + 13 =21
etc.
In forex, the Fibonacci ratios are used extensively to calculate targets for exit points and entry points for trades. These Fibonacci levels are relable as a large number of professional traders use them, and when this happens the traders, in mass, drive the prices to these levels.
Let’s look at how the ratios are derived
Take four sequential Fibonacci numbers
Eg 13,21,34,55
By dividing one number with another we get the ratios.
13/21 = 0.618 or 61.8%
34/55 = 0.618 or 61.8%
34/21 = 1.618 or 161.8%
55/34 = 1.618 or 161.8%
21/55 = 0.382 or 38.2%
13/34 = 0.382 or 38.2%
The square root of 0.618 = 0.786
And the square root of 1.618 = 1.27
In Forex trading the key Fibonacci ratios are
0.382 38.2%
0.50 50%
0.618 61.8%
0.786 78.6% (76.4% is used on Metatrader charts 38.2 x 2 = 76.4% and 1- 34/144 = 0.764) (Price often bounces off an exact 76.4% retracement level and 76.4 is being mentioned by various forex brokers)
1.382 138.2%
1.618 161.8%
2.618 261.8%
On my blog You can find a lot of examples that this numbers works very well. Why? It’s simply the biggest traders use this numbers and it couse the moves.