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What are Fibonacci Retracements?

Fibonacci Retracements | how it works in forex | Reviews Johannes Röll Visitors: 97 ★★★★

 

Setting support and resistance levels for traders, as a rule, presents a problem. It is especially inconvenient to try to understand from scratch where to draw them on the chart: there are thoughts that there are no good points for plotting and, perhaps, it is better to choose a different time frame. Then the chart begins to change direction - and the newly built support becomes resistance.

The question immediately arises: "Where to provide new support and how long to wait for this?"

Over time, a breakout occurs: the trader begins to clearly see two chart peaks and two maximum declines, clearly building horizontal levels. The next revelation is the understanding of the principle of their work, when the price really pushes off from them and breaks up and down.

The next stage in learning strong trading lines is familiarity with the Fibonacci grid. It consists of several horizontal levels at once, which, if correctly constructed, show the stages of price growth and fall in real time. That is, they help to determine how far the price is ready to go, to what point it can roll back and from what level it can continue to move in the original direction.

Thus, you can learn to set several levels on the chart in one fell swoop, between which it will move.

Golden ratio in Fibonacci numbers

Fibonacci lines are a grid of horizontal levels that are plotted on the chart in one move.

The basis for the indicator was found 9 centuries ago. You've probably heard about the principle of the golden ratio. So, it is he who is put into the mathematical formula of the indicator and allows you to use Fibonacci numbers in trading.

The author of the theory was the mathematician Leonardo Pisansky. Initially, he tried to solve the problem about rabbits: "If you put one pair in a closed room, then how many pairs of rabbits will be born within 12 months?"

The received answer turned out to be a phenomenal sequence of numbers: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987. Each next number in this chain is equal to the sum of the two previous ones.

Fibonacci Retracements in trading have a number of very interesting properties, which just confirm that Leonardo really discovered something legendary.

So, if you divide each of the numbers by the previous one, the result will always be equal to 1.618 - the Golden Ratio (Phi number). For example, 610 divided by 377 is 1.618. Test it yourself:

 

Johannes Röll
Johannes Röll

Johannes Röll was born 1978 in Brilon,Germany. Graduated RWTH Aachen University. Over the past ten years he worked as Head of the plastic card team, where he was mainly responsible for the development of the distribution, Head of sales Department and Financial Analyst,where he got experience in planning and support sales figures for branches. For the present he works as freelancer

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