Fibonacci retracementis a favorite tech tools are applied when analyzing a market. Leonardo Fibonacci or Bigollo Pisano was an Italian mathematician in middle ages. Fibonacci is famous for introducing the system of Hindu-Arabic numeral in Europe, mainly through his book Liber Abaci, book of the calculation at the beginning of the 13th century and for a sequence of numbers called Fibonacci numbers. Fibonacci numbers From what we now call technicians as Fibonacci retracement.
Fibonacci retracement is composed of some ratios derived from Fibonacci numbers is 0%, 23,6%, 38.2%, 50%, 61.8%, 76.4% and 100%. These ratios are used to predict any correction market after a movement. These can be upwards and downwards, animations or daily and bearish trend. Suppose GBP/USD currency pair has moved downwards from 1 to 5,000 1.12 4800 in one day. Subsequent to this great movement (200 pips), it is normal for the market to make a correction which is normally the price will bounce back or retrace the 50% Fibonacci retracement objective, in this example, the price will bounce back on the upside in 1.4900, 100 pips above 1.4800.
Now we have two brands: is bearish trend of the market and the price is 50% of last refresh. It is a good opportunity for us to sell the currency pair at this level. Typically, the value will attempt to retest the previous low 1.4800. Profitable opportunity, isn't it? 100 pips downwards to fish. As a good trader, you should always bear in mind in terms of loss of braking. In the example above, you will know where to place the stop loss level. You are right, it should be placed in pips slightly above the 50% Fibonacci retracement level e.g. 1.4900 or so.
In addition to the level of 50%, the most common retracement or correction targets in each market is 38.2% and 61.8% depends on the strength of market trends. Now, you already know how to properly use this tool to find any good opportunity in any market you want to trade. Fibonacci retracement can be used for any market such as forex, commodity or stock market. Furthermore, although at a glance, it is simple to use but can give you a more accurate and more profitable trading structure would be great if you study the basic knowledge of Elliot Wave principle as the wave came from theory Fibonacci math. When you master both techniques, probably you will be the winner in several transactions in any markets.
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This article has been viewed 10 (s).Article submitted on: December 28, 2010
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