Fibonacci Retracements

In the last lesson we discussed support and resistance levels and channels. In the current lesson we are to discuss Fibonacci retracement levels.

THE FIBONACCI SEQUENCE is a sequence that starts with 0 and 1 and each subsequent number is the sum of the previous two: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89…

FIBONACCI RATIOS are found by dividing any number in the sequence by: the number that immediately follows it (61.8%), the number after two places (38.2%) and three places (23.6%), with 50% being another Fibonacci level. In the current lesson we discussed the role and the identification of support and resistance levels, as well as channels, in the next lesson we are to discuss the Fibonacci retracements.

FIBONACCI LEVELS are drawn by connecting two extreme points on a chart and dividing the vertical distance by the key Fibonacci ratios.

These levels can act as key support and resistance levels in the course of a retracement (a move in the opposite direction of the prevailing trend).

0.0% is the start of the retracement while 100.0% is the complete reversal of the move. The 38.2% and 61.8% retracement levels are considered the most significant.

Overall once used to applying Fibonacci levels traders tend to consider them as one of the easiest ways to identify support and resistance lines, while critics tend to mention that random levels are not to be trusted. In any case whether you decide to use them or not, the knowledge is out there and you should have a firm grasp of how they function.

In the next lesson we are to discuss reversal patterns