It is not exaggerating to say that if you do not know what the Fibonacci sequence is, you have lost 50% of your chance of winning. Because of its efficiency, Fibonacci indicator is seen as an indispensable tool to find good entry points.
It can be said that it is superior to other indicators. Therefore, let’s learn in more detail what the Fibonacci sequence is. How to use it effectively when trading Fixed Time Trade in Olymp Trade is also available.
What is Fibonacci indicator?
Fibonacci is an infinite series of numbers, starting with 0 and 1. The next number is always the sum of the 2 preceding numbers.
Specifically, the Fibonacci sequence will be: 0,1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, etc.
The ratios of the Fibonacci sequence
The Fibonacci sequence is also special because of the golden ratio of 1.618 or 0.382. In the Fibonacci sequence, every following number is approximately 1.618 times the previous one (ignoring the first few numbers).
For example, 89 : 55 = 1.618
If we take one number to divide by the number which is 1-number after it, the result will be 0.382 (ignoring the first few numbers).
For example, 55 : 144 = 0.382
Most traders use these ratios to identify market support and resistance.
The Fibonacci retracement: 0.236, 0.382, 0.500, 0.618, 0.764
Fibonacci retracement levels, also known as retracement levels, work in theory as follows: When there is a big price change in one direction, the price will retrace or adjust back to the previous levels before continuing in the original direction. Traders can use the Fibonacci retracement levels as support/resistance zones.
The Fibonacci extension: 0, 0.382, 0.618, 1.000, 1.382, 1.618
Traders use the Fibonacci extension levels to estimate potential price targets. A lot of traders are watching these levels to place reasonable orders to make a profit. Therefore, this tool tends to be active more often.
The meaning of the Fibonacci sequence in technical analysis
The ratios of the Fibonacci sequence play an important role in the way the price moves. Traders rely on that to base the opening of an order in the safest way.
The Fibonacci sequence is the most widely used of all technical indicators. This is partly due to its simplicity and its applicability to most asset types. They can be used to identify support and resistance levels to find safe entry points.
How to draw and use the Fibonacci indicator in Olymp Trade
Before using the Fibonacci tool to identify potential support or resistance levels, you need to be able to identify a Swing High and a Swing Low.
A Swing High is the peak of a price trend within the time frame you are observing. Conversely, a Swing Low is the bottom of a trend with the lowest of the current price trend.
Once these 2 points have been determined, choose the Fibonacci tool on the Olymp Trade trading platform. Then, connect the Swing High and Swing Low together. Potential support and resistance levels will then be explicitly created.
Once you find a potential support level with the Fibonacci indicator, there will be high probability points to open UP orders safely.
On the contrary, after confirming the resistance levels, traders can confidently enter a DOWN order when the price confidently touches it.
We can find Fibonacci magic in the financial markets driven by human psychology. However, using the Fibonacci indicator, like any other method, can still lead to mistakes. You should not blindly deify it.
Whether the Fibonacci numbers work or not, they still provide a good framework for price action analysis. They give us the most accurate support and resistance levels. Instead of fumbling around sorting out retracements, you have already had a very useful framework available.