Fibonacci Who?
You will be using Fibonacci ratios in our trading alot. So its better for you to learn and even love it. Like your mother's cooking. Fibonacci is very important and there are many different Fibonacci studies with weird-sounding names but there are two important ones: retracement and extension.
So who or what is Fibonacci ?
No, Leonardo Fibonacci isn't the founder of Apple neither another famous guy. Well he used to be, but in the past. The very past. He was a famous Italian mathematician, also known as a super duper uber ultra geek.
He discovered a simple series of numbers that created ratios describing the natural proportions of things in the universe.
The ratios arise from the following number series: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144...
He formed the numbers by starting with 0 and adding the next Number (1). Adding those two gives 1. Now he added this Number with the last one -> 1+1 = 2, then 2+1=3 and so on.
After the first few numbers in the sequence, if you measure the ratio of any number to the succeeding higher number, you get .618. For example, 34 divided by 55 equals .618.
If you measure the ratio between alternate numbers you get .382. For example, 34 divided by 89 = 0.382 and that's as far as into the explanation as we'll go.
These ratios are called the "golden mean". You might know this term if you had some arts lessions and your teacher told you that this ratio is perfect in the human eye. We'll just cut to the chase; these are the ratios you HAVE to know:
Fibonacci Retracement Levels
0.236, 0.382, 0.500, 0.618, 0.764
0.236, 0.382, 0.500, 0.618, 0.764
Fibonacci Extension Levels
0, 0.382, 0.618, 1.000, 1.382, 1.618
0, 0.382, 0.618, 1.000, 1.382, 1.618
Traders use the Fibonacci retracement levels as potential support and resistance areas. Since so many traders watch these same levels and place buy and sell orders on them to enter trades or place stops, the support and resistance levels tend to become a self-fulfilling prophecy like the Pivot points but later to that, so keep on reading my blog ;).
Traders use the Fibonacci extension levels as profit taking levels. Again, since so many traders are watching these levels to place buy and sell orders to take profits, this tool tends to work more often than not due to self-fulfilling expectations.
Most charting software includes both Fibonacci retracement levels and extension level tools. In order to apply Fibonacci levels to your charts, you'll need to identify Swing High and Swing Low points.
A Swing High is a candlestick with at least two lower highs on both the left and right of itself.
A Swing Low is a candlestick with at least two higher lows on both the left and right of itself.
You got all that? Don't worry, we'll explain retracements, extensions, and most importantly, how to grab some pips using the Fib tool in the following sections.
Read more: http://www.babypips.com/school/fibonacci-who.html#ixzz1XIWN3kyl
man this stuff is a little confusing then again im not too good with math lol
ReplyDelete