The foundation of Fibonacci trading lies in a remarkable mathematical sequence discovered by Leonardo Fibonacci in the 13th century. This sequence – 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 – holds special significance in financial markets, particularly in technical analysis and price action prediction.
The Magic Behind Fibonacci Ratios When dividing any number in the sequence by the next number, the ratio approaches 0.618 after the first few numbers. This 61.8% level, known as the “golden ratio,” appears frequently in nature and has become a cornerstone of technical trading. Other key Fibonacci ratios used in trading include:
- 23.6% – Minor retracement level
- 38.2% – Important support/resistance zone
- 50% – Major psychological level (not technically Fibonacci)
- 61.8% – Golden ratio, strongest support/resistance
- 78.6% – Deep retracement level
Application in Market Analysis Professional traders implement Fibonacci tools across multiple timeframes and markets, including:
- Forex trading
- Stock market analysis
- Cryptocurrency trading
- Futures markets
- Options strategies
The versatility of Fibonacci analysis makes it valuable for:
- Identifying potential reversal points
- Setting profit targets
- Determining stop-loss levels
- Confirming trend strength
- Finding high-probability trade entries
