What is fibonacci Trading?

Fibonacci is a sequence of numbers where every individual number in the sequence is the amount of the previous two. These numbers were initially calculated based on a mathematical philosophy that was acquired centuries ago. The creation of these numbers came from a ratio that is guided by the Fibonacci sequence, which was discovered in the early 1400s by an Italian mathematician.

The Italian mathematician by the name of Leonardo Pisano Bogolla, uncovered a ratio within the sequence of numbers that follows a pattern. The sequence initiates on the second number where each number in the sequence is the sum of the previous 2 numbers. For instance, 2+1 is 3, and then 5, 8, 13, 21, etc. 

A trader can use Fibonacci retracement levels on their own or mix them with other trading methods. The Fibonacci sequences were used to construct other theories such as the Dow Theory and the Elliot Wave Principle. Fibonacci ratios can also be utilized with other technical analysis tools. 

These ratios consist of the 38.2% ratio and the 61.8% ratio. Other ratios are also used, such as the 50% ratio which exists in the Dow Theory, as well as the short-term target, which is represented by the 23.6% ratio. Fibonacci retracements are usually used as a risk management tool. The targets can be utilized to see a clearer picture of the risk versus reward ratio before executing a trade, as well as uncovering new levels of support and resistance. 

Fibonacci is used in technical analysis to foresee movements in the future by recognizing areas that bring balance to the price of an asset.  

When Fibonacci levels are placed into trading charts, they show how much value an asset has been traded during a specified timeframe and can be used as the main turning point in the direction of a trend. The timeframes span from minutes, hours, days, and weeks with traders engaging with various combinations for different purposes such as catching trends or seeking support and resistance levels. 

When it comes to drawing Fibonacci retracements, they come with some basic rules that need to be followed, however, there is also a specific degree of discretion that comes with it. It already starts with the point that is chosen to measure the Fibonacci retracement. Two traders may get different outcomes, based on what they pointed out as major low/high. It is usually easier to practice on the higher timeframe charts, before moving downwards towards the hourly or minute charts. 

Understanding Fibonacci can assist novice traders in understanding the market sentiment better and enhancing their knowledge of crucial factors such as trendlines and volatility.