Part 18 Technical Analysis – Using Fibonacci lines (video)

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Good for Beginners!
    Free Education + Free Demo Account!
    Get Your Sign-Up Bonus Now!

  • Binomo
    Binomo

    Only For Experienced Traders!

Part 18: Technical Analysis – Using Fibonacci lines (video)

Today, we will focus on the application of Fibonacci lines in more detail. As we have already spent some time on this topic, to get a better grasp of the issue I recommend you read the following articles:

For those who already know the articles or don’t want to read them now, I have found a video on the internet. The author of the video is Manesh Patel (probably coming from India) who explains in his videos how to trade. He makes more videos like the one we are presenting. If you look at YouTube you will find them all.

Fibonacci retracement and Initial Balance video

In the following video, trader Minesh Patel explains how the “Fibo” lines work, how and when to use them. Thought the length of the video is nearly one hour, I believe that you will not regard it as wasted time.

I recommend that you replay also this video (https://www.youtube.com/watch?v=nPArE_sblnk ) focused on Initial Balance, an indicator similar to Fibonacci lines using specific values applied to a specific time span. This indicator is certainly worth examining in more detail. I use it for making analyses almost every day.

Where to get the above indicators

Both the indicators are available freely over the internet or as part of strategies BERSI, BERSI 2.0 and BERSI Scalp (the latest version). All the strategies use weekly IB lines. The first two versions also include daily IB lines and BERSI Scalp Fibonacci lines.

I am of the opinion that all traders should know that these indicators exist. They can help with retracement or the identification of pullback’s bottom. Read the below articles to learn more:

Author

More about the author J. Pro

Unlike Stephen (the other author) I have been thinking mainly about online business lately. I wasn’t very successfull with dropshipping on Amazon and other ways of making money online, and I’d only earn a few hundreds of dollars in years. But then binary options caught my attention with it’s simplicity. Now I’m glad it did because it really is worth it. More posts by this author

Part 24: Technical Analysis – Fibonacci Sequence

Fibonacci sequence is a well-known term not only among technical analysis traders. What about you? Did you know this term? Let’s take a short look at the technical aspects of the Fibonacci sequence, various modifications that can be used and the way the sequence is displayed in a chart.

Fibonacci sequence

In mathematics, the Fibonacci numbers are the numbers in the following integer sequence, called the Fibonacci sequence, and characterized by the fact that every number after the first two is the sum of the two preceding ones. The fibonacci sequence starts with zero and one and, before you look at the below line, try to guess the next numbers.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Good for Beginners!
    Free Education + Free Demo Account!
    Get Your Sign-Up Bonus Now!

  • Binomo
    Binomo

    Only For Experienced Traders!

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, …

Leonardo Fibonacci demonstrated the sequence in nature. Numerous shapes of the Fibonacci sequence can be found in various fields. Fibonacci used for his demonstration of the growth of an idealized (biologically unrealistic) rabbit population. Yet, this phenomenon can be found also in beehives and other shapes in nature. It seems that almost everything in the realm of plants, fruits, and trees has something to do with the Fibonacci sequence.

How Fibonacci sequence relates to the Forex market?

Although our magazine is dedicated to trading, it might be of your interest to learn where in nature the Fibonacci sequence can be found. A few examples:

  • Look at the number of petals: Lilies and iris have 3 petals; buttercups have 5 petals some delphiniums have 8; corn marigolds have 13 petals; some asters have 21 whereas daisies can be found with 34.
  • If you cut a banana in half you will see 3 segments across the middle. If you cut the apple you will get 5 segments from the middle.
  • The shape of a Nautilus shell is one more illustration of the Fibonacci numbers. Other examples include the African continent and many more.

Fibonacci sequence in trading

How to use Fibonacci numbers in trading has already been described in one of our previous articles. (The link is shown at the end of this text). Now, let’s refresh some typical illustrations of the Fibonacci sequence in a market.

Most traders (including me) use Fibonacci primarily for identifying middle-term low and middle-term high. Then they connect the two lines and, following the Fibonacci principle, draw support/resistance lines in relevant points. Look at the below picture showing how beautifully the lines work.

Fibonacci lines and price bounces demonstrated on the index S&P500 (timeframe 4 hours)

The same principle can be applied to time zones, showing potential moments of important price movements (see picture below).

There are various modifications of Fibonacci levels: Fibonacci lines, Fibonacci fun showing angles as well as Fibonacci channel. No matter which one you choose a common denominator of all is the Fibonacci sequence. Individual trading strategies employing Fibonacci sequence will be examined in one of our next articles. For the time being, try out to place the patterns on historical data. Can you see the reactions at the critical levels?

Fibonacci time zones

More details about Fibonacci numbers and how to use them in trading

TIP: Fibonacci lines have already been described in our articles. Relevant links are shown below.

Author

More about the author J. Pro

Unlike Stephen (the other author) I have been thinking mainly about online business lately. I wasn’t very successfull with dropshipping on Amazon and other ways of making money online, and I’d only earn a few hundreds of dollars in years. But then binary options caught my attention with it’s simplicity. Now I’m glad it did because it really is worth it. More posts by this author

2 Responses to “Part 24: Technical Analysis – Fibonacci Sequence”

Fibonacci is the only tool you need, but the problem is effectively drawing it on charts ��

Hello Malik, if you have enough experience is not that hard. Anyway – Technical analysis is one of my favorite things and I use it more than the fundamental analysis.

Fibonacci Retracement Definition & Levels

What is a Fibonacci Retracement?

A Fibonacci retracement is a term used in technical analysis that refers to areas of support or resistance. Fibonacci retracement levels use horizontal lines to indicate where possible support and resistance levels are. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8% and 78.6%. While not officially a Fibonacci ratio, 50% is also used.

The indicator is useful because it can be drawn between any two significant price points, such as a high and a low, and then the indicator will create the levels between those two points.

If the price rises $10, and then drops $2.36, it has retraced 23.6%, which is a Fibonacci number. Fibonacci numbers are found throughout nature, and therefore many traders believe that these numbers also have relevance in the financial markets.

Key Takeaways

  • The indicator connects any two points that the trader views at relevant, typically a high and low point.
  • Once the indicator has been drawn on the chart, the levels are fixed and will not change. The percentage levels provided are areas where the price could stall or reverse.
  • Levels should not be relied on exclusively. For example, it is dangerous to assume the price will reverse after hitting a specific Fibonacci level. It may, but it also may not.
  • Fibonacci retracement levels are most frequently used to provide potential areas of interest. If a trader wants to buy, they watch for the price to stall at a Fibonacci level and then bounce off that level before buying.
  • The most commonly used ratios include 23.6%, 38.2%, 50%, 61.8% and 78.6%. These represent how much of a prior move the price has corrected or retraced.

The Formulas for Fibonacci Retracement Levels Are:

The indicator itself doesn’t have any formulas. When the indicator is applied to a chart the user chooses two points. Once those two points are chosen, the lines are drawn at percentages of that move.

If the price rises from $10 to $15, and these two prices levels are the points used to draw the retracement indicator, then 23.6% level will be at $13.82 ($15 – ($5 x 0.236)) = $13.82. The 50% level will be at $12.50 ($15 – ($5 x 0.5)) = $12.50.

How to Calculate Fibonacci Retracement Levels

As discussed above, there is nothing to calculate when it comes to Fibonacci retracement levels. They are simply percentages of whatever price range is chosen.

You may wonder where these numbers come from, though. They are based on something called the Golden Ratio.

If you start a sequence of numbers with zero and one, and then keep adding the prior two numbers, you end up with a number string like this:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987. with the string continuing on indefinitely.

The Fibonacci retracement levels are all derived from this number string. Excluding the first few numbers, as the sequence gets going, if you divide one number by the next number you get 0.618, or 61.8%. Divide a number by the second number to its right and you get 0.382 or 38.2%. All the ratios, except for 50% since it is not an official Fibonacci number, are based on some mathematical calculation involving this number string.

Interestingly, the Golden Ratio of 0.618 or 1.618 is found in sunflowers, galaxy formations, shells, historical artifacts and architecture.

Fibonacci Retracement

What Do Fibonacci Retracement Levels Tell You?

Fibonacci retracements can be used to place entry orders, determine stop loss levels, or set price targets. For example, a trader may see a stock moving higher. After a move up it retraces to the 61.8%% level, and then starts to bounce again. Since the bounce occurred at a Fibonacci level, and the longer trend is up, the trader decides to buy. They could set a stop loss at the 78.6% level, or the 100% level (where the move started).

Fibonacci levels are used in other forms technical analysis as well. For example, they are prevalent in Gartley patterns and Elliott Wave theory. After a significant price movement up or down, when the price retraces (which it always does), these forms of technical analysis find the retracements will tend to reverse near certain Fibonacci levels.

Fibonacci retracement levels are static prices that do not change, unlike moving averages. The static nature of the price levels allows for quick and easy identification. This allows traders and investors to anticipate and react prudently when the price levels are tested. These levels are inflection points where some type of price action is expected, either a rejection or a break.

The Difference Between Fibonacci Retracements and Fibonacci Extensions

While Fibonacci retracements apply percentages to a pullback, Fibonacci extensions apply percentages to a move back in the trending direction. For example, a stock goes from $5 to $10, and then back to $7.50. The move from $10 to $7.50 is a retracement. If the price starts rallying again and goes to $16, that is an extension.

Limitations of Using Fibonacci Retracement Levels

While the retracement levels indicate where the price could potentially find support or resistance, there are no assurances the price will actually stop there. This is why other confirmation signals are often used, such as the price actually starting to bounce off the level.

The other argument against Fibonacci retracement levels is that there are so many of them that the price is likely to reverse near one of them quite often. The problem is that in advance traders struggle to know which one will be useful on the current retracement they are analyzing.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Good for Beginners!
    Free Education + Free Demo Account!
    Get Your Sign-Up Bonus Now!

  • Binomo
    Binomo

    Only For Experienced Traders!

Like this post? Please share to your friends:
Binary Options Trading
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: