skip to main |
skip to sidebar
Fibonacci Extension what is fibonacci and how to use it in the world of FX?
Leonardo Fibonacci was a 13th century mathematician who noted that there are certain ratios that tend to occur repeatdly in nature . The common ones that he identified were 38.2%, 50%, and 61.8%.
For example, the distance from your fingertips to your wrist is 38.2% of the distance from your fingertips to your elbow. There is overwhelming evidence of Fibonacci ratios operating throughout nature.
These are not always perfect, but surprisengly they work more than just often!! Many people have argued about why these work, but my opinion is that all the large institutions use them, so you might as well buy or sell at the same levels that they do and if these levels don't hold you can get out with a small loss.
Fibonacci Retracement
fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by Leonardo Fibonacci. However, Fibonacci 's sequence of numbers is not as important as the mathematical relationships, expressed as ratios, between the numbers in the series. In technical analysis, Fibonacci retracement is created by taking two extreme points (usually a major peak and trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels. Before we can understand why these ratios were chosen, we need to have a better understanding of the Fibonacci number series.
Fibonacci
We should know from the beginning that the Fibonacci is a big subject and there are many ways to study the Fibonacci .there is a lot of types of the Fibonacci but we will show 2 types only: the Fibonacci retracement and extension.
The Fibonacci ratio can start from this number: 1, 1, 2, 3, 5, 8, 13, 21, 34
The number series starts from the number 1 then the number 2 and after that we add 1+2 we will get 3 ,it will be the third number ,then we add 2+3 we will get 5 and that will be the fourth number.
Fibonacci extension: the levels of Fibonacci extension will be 0, 0.382, 0.618, 1.000, 1.382, 1.618.many Traders can use the Fibonacci extension as profit taking level and when they watch the same levels ,they can buy or sell to enter the trade or cancel it, so this will become a due self-fulfilling expectation.
Channels
There are 2 types of channels in the forex market :1-If you want to create a down channel, it may also be called a descending channel, you can simply draw a line at the same angle as the downtrend and after that move the line to a new place where it can reach the most recent both valley.
For the both channels ,it should be done at the same time to you to create the trend line.It may be a sell signal when the prices hit the up trend line and it can be a buy signal when the prices hits the down trend line.
Trend Lines
The trend lines are a popular and an important type in technical analysis for trend identification and confirmation, They are also one of the most underutilized as well.
There are two kinds of trends:Stock up trend: it can be used like a sell signal, deemed to be complete with the formation of a lower high or a lower low.Stock downtrend: it can be used like a buy signal , deemed to be complete with the formation of a higher low or higher high.
Support and Resistance
The concepts of support and resistance are undoubtedly two of the most important and highly discussed attributes of technical analysis and they are often regarded as a subject that is complex by those who are just learning to trade.
Most experienced traders will be able to tell many stories about how certain price levels tend to prevent traders from pushing the price of an underlying asset in a certain direction.Most technical traders incorporate the power of various technical indicators such as moving averages, to aid in predicting future short-term momentum, but these traders never fully realize the ability these tools have for identifying levels of support and resistance
