What is the Fibonacci Sequence and why is it key in trading?
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The Fibonacci Sequence is not just a mathematical curiosity; it is also a fundamental tool in technical analysis. Its application helps identify retracement zones, expansion, and support/resistance points.
What is the sequence?
It is a sequence in which each number is the sum of the two previous ones:
0, 1, 1, 2, 3, 5, 8, 13, 21, ...
The most important aspect is not the numbers themselves, but the proportions between them. These are reflected in the most commonly used levels in technical analysis:
0.236
0.382
0.500 (not pure Fibonacci, but used)
0.618 ← the famous "golden ratio"
0.786
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How is it used in trading?
1. Fibonacci Retracements:
They are applied in strong trends to see how far the price might retrace before continuing.
It is drawn from the minimum to the maximum (in an upward trend) or vice versa.
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2. Fibonacci Extensions:
It is used to project price targets beyond the current movement.
3. Key zones:
61.8% is one of the most watched zones. Many traders wait there to buy (or sell).
38.2% also acts as very frequent support/resistance.
Practical example:
If a cryptocurrency rises from $100 to $200 and begins to retrace, you could expect a bounce at:
38.2%: $161.80
50%: $150
61.8%: $138.20
Advice in exchange for a like:
Fibonacci levels are not signals by themselves, but combined with volume, candles, and patterns, they can give you high probability entries and exits.
