The Fibonacci Levels
The Fibonacci number string is used by many investors around
the world. Fibonacci numbers in investments are most often used in two ways:
- As the elimination of vertical price levels and
- As target levels, prices in time (level).
Leonardo Fibonacci was one of the most famous Italian
mathematicians. The effect of his mathematical inquisitiveness was to create a
series of numbers that have interesting properties and which often occur
spontaneously in nature as an ideal representation of proportions. The string
that we are interested in is briefly described in this way: 1, 1, 2, 3, 5, 8,
13, 21, 34, 55, 89, 144 etc. The number that we are interested in arises by
summing up two previous ones, for example: 1 + 2 = 3; 2 + 3 = 5; 5 + 8 = 13
etc.
Another interesting property of the string is the fact that
if we divide the number by the number of the next in the string, we always get
a result close to 0.618, for example: 5/8 = 0.625; 34/55 = 0.618; 89/144 =
0.618 and if we divide the number by its predecessor, we get an oscillating
result around 1.618, e.g. 55/34 = 1.617, 144/89 = 1.6179, 233/144 = 1.618 -
both of these properties are known in geometry as golden breakdown. If we would
like to divide the number by the second in number, we always get a value close
to 0.382, for example: 34/89 = 0.382, 55/144 = 0.381, etc. The string has many
interesting properties, however, the above are the most important for us.
In technical analysis, the most common values are: 0.236;
0.382; 0,500; 0.618; 1; 1.382 and 1.618.
Traders use the Fibonacci lifts to:
- marking support / resistance,
- destinations (ie places of profits and stop loss orders).
The market often "descends" slightly below 38.2 or
61.8% of the level of the preceding wave, followed by a clear reflection
and continuation of the previous movement. These types of traps happen at every
step.
Thus, it turns out that if the market violates the 61.8%
lifting, it very often stops at 0.685 of the previous wave and then returns to
its original direction.
There are also frequent situations in which the market
stands above the important peaks and then negates the breakdown, price going below
its level and creating a formation similar to a double peak (similar scenarios
also occur in the case of unsuccessful attempts to break the market below
significant bottoms).
Looking at such characteristic and repeated market
behaviors, you can calculate the level of support or resistance using Fibonacci
numbers.
This situation is also in case of attempting to
pierce an important peak. In this scenario, the market often stops at
the external level of the preceding wave, which is usually 138.2% or
161.8%.
Following is the video of how to use Fibonacci lines tool in Trading View.
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