# Fibonacci Retracement & Fibonacci Sequence Explained!

**Fibonacci Sequence** and **Fibonacci Retracements** are essential technical formation in Forex trading. A retracement is a term used to define the fluctuation of graph prices below or above a certain level. A retracement does not have to reach the zero line for it to become significant – but it MUST end within the range of the last high.

Fibonacci sequence and fibonacci retracement are used extensively in technical analysis where they act as support and resistance points. Fibonacci series is one of the popular strategies in leveraging currency trading.

**Fibonacci Sequence And Fibonacci Retracement: Forex Strategies In Connectivity**

**Fibonacci Sequence and Fibonacci Retracements** are essential technical formation in Forex trading. A retracement is a term used to define the fluctuation of graph prices below or above a certain level. A retracement does not have to reach the zero line for it to become significant – but it MUST end within the range of the last high.

Table of Contents

**What is Fibonacci Sequence and Fibonacci Retracement**

The **Fibonacci Sequence** is a series of numbers in which each number is the sum of the previous two. The sequence begins with 0, 1, 1, 2, 3, 5, 8, 13, 21, 34 and so on. The Fibonacci Retracement is a tool that is used by many Forex traders to predict market movements.

The Fibonacci Sequence is named after Italian mathematician Leonardo Fibonacci. He discovered this series of numbers while studying the growth of a population of rabbits. The sequence has since been found to occur naturally in many different situations, including in the arrangement of leaves on a stem and the petals of a flower.

So, **What is Fibonacci Retracement**? Fibonacci Retracement is based on the idea that market prices will retrace a certain percentage of a move before continuing in the original direction. The most common levels used are 38.2%, 50%, and 61.8%. These percentages are derived from the Fibonacci Sequence.

Many Forex traders use the Fibonacci Retracement as part of their trading strategy. They will place their orders at certain Fibonacci levels in order to take advantage of market reversals.

The Fibonacci Sequence and Fib onacci Retracement are very popular among technical traders and Elliott Wave practitioners. Many of them watch and wait for particular ratios to appear in market prices before they take their trades. Whether you plan on using the Fibonacci Sequence or Fibonacci Retracement in your trading, it’s important that you understand why they are so popular among traders, as well as what some common Fibonacci levels are used for.

Changes In Market Trend, Chart Pattern Recognition and Indicators all together can offer you a robust analysis of what is going in the price or an underlying security or market trend and how it may change resulting to a signal for a strategy trade accordingly.

**An Overview of Fibonacci Retracement**

The Fibonacci sequence is a set of numbers that starts with 0 and 1, and each subsequent number is the sum of the previous two. The Fibonacci sequence can be used to create a Fibonacci retracement, which is a tool used by traders to identify potential support and resistance levels.

**Fibonacci retracement levels** are calculated by taking a high and low point on a chart, and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. These levels are horizontal lines that can be used as potential support or resistance levels.

Traders will often look for price action signals at these levels, such as candlestick patterns or divergences, to confirm that the level is acting as support or resistance. Once a level is broken, it can often act as a new support or resistance level.

The Fibonacci sequence and Fibonacci retracement levels are important tools for traders to be aware of, as they can provide clues about potential turning points in the market.

**Fibonacci Retracements and the Forex Trading**

The **Fibonacci sequence is a series of numbers** where each number is the sum of the previous two. The most famous example is probably the sequence 1, 1, 2, 3, 5, 8, 13, 21, 34… This goes on forever. Each new number in the sequence is approximately 1.618 times greater than the preceding number (this ratio is known as the Golden Rule or Divine Proportion).

Fibonacci Retracements are another Fibonacci Tool used in trading and are based on fixing point highs and lows in order to identify possible reversals using horizontal lines. For a downtrend, the trader will look for a point high and draw a line from this point to the recent low; for an uptrend, they will do the opposite. The key Fibonacci levels used in trading are 23.6%, 38.2%, 50% and 61.8%.

The idea behind using **Fibonacci Ratios** in trading is that these ratios can be found throughout nature and often times INDICATE support and resistance levels in financial markets as well. For example, the 50% level is thought to indicate a turning point or consolidation area while the 38.2% and 61.8 true Fibonacci levels, act as dynamic support and resistance levels. The 50% level, 1.618 times the distance from the first point to the second (1 to 2), is said to be a turning point or consolidation area because when price returns to this level, it often reverses direction. This also means that price will drop by 50% before continuing in its original trend — which can prove profitable if you know what you are doing.

This is achieved by calculating the difference between two consecutive highs and dividing this by the percent move of larger high minus lower low (example below): Fibonacci ratios describe a specific number occurring frequently in nature. For example, 153 is a Fibonacci ratio because it has Fibonacci numbers. Fibonacci can also be Used Along with MACD, Bollinger Bands, RSI & More Indicators to Draw Levels Accurately and Trades can be More Secure if you Place Trades on the Levels.

**Fibo The Forex Trader’s Friend**

The most famous example of the Fibonacci Sequence is in the so-called **Golden Ratio**, which is used extensively in art and architecture.

In the world of Forex trading, Fibonacci Retracement is a popular tool that traders use to identify potential support and resistance levels. These levels are based on the Fibonacci Sequence, and by applying them to a price chart, traders can get a better idea of where the market might turn.

While there’s no guarantee that prices will always respect Fibonacci levels, they do provide a useful framework for understanding market movements. And by combining Fibonacci Retracement with other technical analysis tools, such as trendlines and candlestick patterns, traders can develop robust Forex strategies. Those who do Compound Trading will be Benefited if they Combine Fibonacci with Indicators.

**Calculating the Fibo’s Ratios on a Chart:**

In order to trade Forex with the Fibonacci Sequence, or Fibonacci Retracement, you need to first calculate the Fibonacci ratios. You can do this by dividing one number in the sequence by the number that immediately precedes it. For example, if we take the Fibonacci sequence of 1, 2, 3, 5, 8, 13, 21, 34, 55, 89:

The Fibonacci ratios would be calculated as follows: 1/2 = 0.5, 2/3 = 0.667, 3/5 = 0.6, 5/8 = 0.625, 8/13 = 0.615, 13/21 = 0.619 and so on.

These ratios can then be used to identify support and resistance levels on a Forex chart. For example, if the price of a currency pair is currently trading at 1.2000 and you see that the Fibonacci ratios indicate that there is potential support at 1.1875 (0.618 x 1.2000), you might want to consider buying the currency pair at that level.

**How to Use Fibonacci’s Retracement?**

Fibonacci retracements are drawn from the up and down movement of the price. There are three main types: 38.2%, 50% and 61.8%. These percentages are reached by dividing a number of selected points in a vertical line created either by measuring the peaks/troughs or High/Low, these numbers should be included in a chart and re-drawn to create an area that is roughly a rectangle which covers most of the price range.

The **Fibonacci ****extension** or sequence is a series of numbers where each number is the sum of the previous two. The most famous example of the Fibonacci sequence is the Golden Ratio, which is approximately 1.618. The Fibonacci sequence can be applied to trading in several ways, including Fibonacci Retracement and Fibonacci Extensions.

Fibonacci Retracement is a popular tool among traders. It is used to identify support and resistance levels. Fibonacci Retracement is based on the idea that prices will retrace a certain percentage of a move before continuing in the original direction. The most common Fibonacci Retracement levels are 23.6%, 38.2%, 50%, and 61.8%.

whereas, if you Ask **How to Use Fibonacci Sequence** are used to predict areas of support or resistance in the future. They are based on the same principle as Fibonacci Retracement but instead of using past price action, they use current price action to project future levels. The most common Fibonacci Extension levels are 100%, 161.8%, 261.8%, and 423.6%.

Both Fibonacci Retracement and Sequence can be useful tools for traders. By identifying key levels and knowing the scopes of their accuracy, traders have a better chance to trade more efficiently.