Fibonaccy retracements are a favorite of forex traders that use technical analysis to determine support and resistance levels in the market. It is generally applied to traders forex trading strategy.
Fibonacci retracements are based of a sequence of numbers that were found by the renowned thirteenth century mathemetician, Leonardo Fibonacci. Fibonacci ratios are utilized to divide the area between two points (high and low). These ratios are 23.6%, 38.2%, 50%, 61.8% and 100%..
If plotted on a financial charts, the ratio lines will be drawn automatically. The lines that make up the ratios can be used as areas of support and resistance. When pushed for an explanation to why this is so, most do not have an answer. Because of their efficiency, most traders utilize fibonacci retracements in their daily trading.
Some familiar markets that use this tool include the stock market, commodities market, futures market and the forex market. A few individuals have created something fibonacci confluence in an effort to improve the performance of fibonacci retracements in general. Fibonacci confluence is done by using two or more fibonacci retracements on the same financial instrument. These multiple lines all start from the same point but end at various levels of support and resistance.
Areas which are found to have more than one ratio line are considered areas with strong support or resistance. Traders mark these areas as a reminder during trading.
Fibonacci retracements are not usually utilized as a stand alone tool. They are utilized in conjunction with other forex indicators to enhance their rate of success. Used in tandem with other indicators in a strategy, fibonacci retracements are a reliable tool that are not often ignored when opening a trade.
Fibonacci Retracement Tutorials in addition to extra universally utilized Forex Indicators Tutorials are just a number of of the topics touched on on the authors forex related hub.