Adding Fibonacci Levels

Adding Fibonacci LevelsFibonacci Levels are a keen analytical tool that use an elegant mathematical formula . They are used to predict cycles of expansion and contraction in markets.

All things that grow or decay follow predictable mathematical patterns. Businesses follow the same mathematical laws as all growing things.

The Fibonacci sequence is a mathematical restatement of a fundamental truth of life. Using simple addition, Leonard Fibonacci painted a mathematical picture of the way things tend to grow. The sequence begins simply:

1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…

Often the simplest tools are the most powerful. As you can see, each number is the sum of the two numbers before it. Though the numbers are ever-expanding (and there is no end to the Fibonacci sequence), the ratio between them remains the same. This is the so-called “Golden Ratio,” famously used by artists, architects, and mathematicians alike. It is found everywhere in the world around us — in the number of seeds in a sunflower, the shape of a business card, or the ratio of one of our fingerbones to another. Curiously, the ratio of one kilometer to one mile is almost exactly the Golden Ratio. But the sequence is not magic; it is only a restatement, on a mathematical level, of the way things tend to grow.

The Fibonacci sequence tells an experienced analyst where to look for turning points in cycles of growth and decay. On a graph, a Fibonacci retracement show support levels and resistance levels with horizontal lines. The analyst then chooses two points on a chart and divides the vertical distance by key Fibonacci ratios. The ratios remain simple and consistent to apply.

Careful analysis and data assembly reveals that markets often “pull back” or retrace a sequence or move, before continuing to move in the original direction. First the analyst will accurately identify support or resistance levels; points where the price tends to find support as it is going down, or to meet resistance as it is going up. The price will more likely “bounce” off this level before moving through it. Once the price has moved through the support or resistance level, though, it will probably continue to move until it reaches the next level.

Since most market activity reveals itself to competent analysis, mathematical tools can be used to more accurately pinpoint these levels. This allows a business to identify where their price will tend to fall, and also to address the pre-existing conditions that create the levels themselves. For Forex traders, it allows them to find the turning points in the market. If the support and resistance levels are the horizontals of a market, adding Fibonacci levels can help find the verticals. With practiced accuracy experienced professionals like the ones at Lucror FX can hone in on the patterns that make a market work and see the shapes inside the data. Contact Lucror FX for more information today.

 

This entry was posted in Online Forex Trading and tagged , , , , , . Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Live Chat