Why Use Fibonacci in Trading?

The Fibonacci sequence is widely used in technical analysis to identify key support and resistance levels in financial markets. Derived from the famous mathematical sequence, Fibonacci trading techniques primarily involve retracement levels and extension levels, which help traders predict potential price movements.

How Does Fibonacci Work in Trading?

Fibonacci retracement levels are based on specific percentage ratios (23.6%, 38.2%, 50%, 61.8%, 78.6%) that help identify potential reversal points within a trend. These levels are drawn between a significant high and low to anticipate where the price might pause or reverse before continuing its movement.

Fibonacci extensions, on the other hand, help determine potential price targets beyond a previous high or low, using levels such as 127.2%, 161.8%, and beyond.

Why Is Fibonacci Useful in Trading?

Predicting Reversal Points – Helps identify potential areas where the price may bounce or reverse.

Identifying Support and Resistance Levels – Useful for planning trade entries and exits.

Applicability to Various Markets – Works with forex, stocks, cryptocurrencies, and other assets.

Compatibility with Other Strategies – Can be combined with indicators like RSI, MACD, and moving averages.

Conclusion

Using Fibonacci in trading does not guarantee profits, but it is a valuable tool for making more informed trading decisions. When combined with other technical analysis methods and proper risk management, it can become a powerful asset for traders.