Fibonacci analysis is a tool that technical traders all need in their arsenal from an experiential and practical perspective. Most Fibonacci users, even if they’re brave enough, typically use it wrong because they use them arbitrarily, or without intention.
But as a beginner or experienced trader, over time and with practice, you can use Fibonacci analysis to find logic and order in otherwise financial markets. This basis of using science, math and systems to objectively participate in financial markets can be an integral part of your strategy.
Being able to look at markets from a price based manner, no matter the market, no matter the environment, can give some sort of informational edge, which is important as a trader.
Understanding how to use and apply Fibonacci analysis to your trading can be key to creating your advantage.
Fibonacci was first discovered by Leonardo Pisano Bogollo (aka Fibonacci), an Italian mathematician from Pisa in the 13th century. It’s a number sequence that when you take the first two numbers in the sequence, you get the next number and it repeats, such that what’s important to trading is in proportion. As you start to divide these numbers, and you get to the eighth number in the Fibonacci sequence, you either get Phi or the reciprocal 0.618 or 1.618.
Fibonacci numbers are used in the markets to find areas of support and resistance, and they are often used to find support and resistance that hasn’t happened yet, in the future. Remember trading is about anticipating what’s going to happen.
….the proportion of .618034 to 1 is the mathematical basis for the shape of playing cards and the Parthenon, sunflowers and snail shells, Greek vases and the spiral galaxies of outer space. The Greeks based much of their art and architecture upon this proportion.
They called it the Golden Mean.
As a trader, if you can find a price level that is important for a turning point in the market in the future – you have an edge, you have informational advantage. This is why we use Fibonacci numbers.
Does Fibonacci Analysis guarantee certainty? No, but we have a good idea of how to get probability on our side as a trader. Using a combination of tools like Fibonacci retracement and extensions, Candlestick patterns, and Elliott Wave Theory, can take a dedicated trader from making one or two good trades, to a trading career a lifetime.
Find your edge
In our Trading Fundamentals course, we teach in detail key fibonacci levels, and how to apply fibonacci retracement and projection in your trading analysis.
