What are Fibonacci levels? What is its importance in trading?

Technical analysis is a broad and diverse field, as there are many tools that are used to analyze the markets in a successful manner. Fibonacci lines are one of the tools that have stood the test of time, which is a popular technical analysis model used by traders to predict potential price support and resistance levels in the markets in the future. , if . is used Fibonacci trading Correctly Fibonacci trends can help you identify upcoming support and resistance levels based on previous price action.

It is a popular tool based on sequential prime numbers, and was identified by the mathematician "Leonardo Fibonacci", who discovered a remarkable number sequence and a unique proportion of these numbers, these number sequences are 1, 1, 2, 3, 5, 8, 13, 21 , 34, 55, 89, 144, 233, 377, 610 etc. This sequence is constructed by adding the first two numbers together and the process continues in sequence.

For example, 1 + 1 = 2, 1 + 2 = 3, 2 + 3 = 5, 3 + 5 = 8, 5 + 8 = 13,..., an interesting proportion is produced from this sequence. Each number on the next one produces a remarkably constant ratio, the value of this ratio is 0.6180345, for example: 55/89 = 0.617, 233/377 = 0.618, 144/377 = 0.618

This means that every two numbers in this series are spread out at a rate of approximately 1.618 which is referred to as the golden ratio, and this ratio can be observed in some different natural phenomena.

But how can this sequence be used and applied in technical analysis and identification of support and resistance levels?

The main and common Fibonacci ratios are 38.2%, 23.6% and 61.8%, and the 61.8% ratio is found by dividing one number by the number that follows it as mentioned earlier.

As for the 38.2% ratio, it came by dividing one number in the series by the number in two places on the right, for example: 13/34 = 0.382, 55/144 = 0.381

And the ratio of 23.6% is found by dividing one number in the series by the number which is three places on the right, for example: 8/34 = 0.2352.

In technical analysis, Fibonacci levels are created by taking two extreme points on the chart and dividing the vertical distance by the main Fibonacci ratios. Once these ratios are determined, horizontal lines are drawn and used to identify potential support and resistance levels. Mac and Android apps Fibonacci lines for traders because of their great importance in trading.

These numbers have become important focal points when analyzing trend retracement. Fibonacci numbers are the crucial numbers in Elliott wave analysis. They play a major role in analyzing your thinking and in making investment decisions, and many technical investors use these critical levels to anticipate reversals in the price of an asset.

Fibonacci retracement is the most widely used in all trading tools, as it is also used in the analysis of global and Arab stock exchanges such as the market Saudi stocks and UAE, due in part to its relative simplicity and applicability to almost any trading instrument, it can also be used to identify and confirm support and resistance levels, place stop-loss orders or target prices, and even act as a primary mechanism in a counter-trend trading strategy.

Some Fibonacci ratios are important for some time

New traders have become obsessed with Fibonacci levels, their idea about these levels is that they are strong and will achieve what they just have to wait, Fibonacci levels cannot be used in this way, it is a bad strategy.

This is because not all Fibonacci levels play an important role at the same time, hindsight tells us exactly where the price stops at Fibonacci levels, but we cannot predict at which price it will stop.

Some Fibonacci levels work well sometimes but the price can be broken suddenly.

 

Mohamed Abdel Khaleq
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