Fibonacci Sequence and Trading
Fibonacci sequence was discovered by Fibonacci (actual name Leonardo Pisano), an Italian mathematician in early 13th century. The series is very simple where a number in the series is the sum of preceding two numbers (1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144……).
The more interesting aspect of the sequence is that there is reasonably definite relationship between all the numbers in the sequence, which can be represented as ratios, like every number is 1.618 of its preceding number. The important Fibonacci ratios are 0.236, 0.5, 0.382, 0.618, 0.764, 1, 1.382, 1.618, 2.618, etc. These ratios – also known as ‘Golden Ratio’ - are very common in nature.
Fibonacci ratios are also widely applied in trading of diverse financial instruments for various purposes. Usually they are applied to charts to find out support and resistance levels, to predict entry and exit points, longevity of trends, trend reversals, creating stop-loss orders, profitable positions, etc. There are also many trading systems built around these ratios. The four most popular Fibonacci trading applications are Fibonacci Arcs, Fibonacci Fans, Fibonacci retracements and Fibonacci time zones.
Over the years many traders made more complex Fibonacci applications, which made them difficult to be understood by novice traders. But once traders understand the basics they can make use of Fibonacci ratios with other trading tools and indicators to better perform the trades.
The more interesting aspect of the sequence is that there is reasonably definite relationship between all the numbers in the sequence, which can be represented as ratios, like every number is 1.618 of its preceding number. The important Fibonacci ratios are 0.236, 0.5, 0.382, 0.618, 0.764, 1, 1.382, 1.618, 2.618, etc. These ratios – also known as ‘Golden Ratio’ - are very common in nature.
Fibonacci ratios are also widely applied in trading of diverse financial instruments for various purposes. Usually they are applied to charts to find out support and resistance levels, to predict entry and exit points, longevity of trends, trend reversals, creating stop-loss orders, profitable positions, etc. There are also many trading systems built around these ratios. The four most popular Fibonacci trading applications are Fibonacci Arcs, Fibonacci Fans, Fibonacci retracements and Fibonacci time zones.
Over the years many traders made more complex Fibonacci applications, which made them difficult to be understood by novice traders. But once traders understand the basics they can make use of Fibonacci ratios with other trading tools and indicators to better perform the trades.
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posted by NobleTrading at
8:38 AM
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