What is Fibonacci and how is in Forex? The sequence of numbers, called the Fibonacci sequence, is included as “Fibonacci Numbers” in the book “Liber Abacci” by Italian Loeonardo Fibonacci, who is considered one of the greatest mathematicians of the Middle Ages. Numbers, also known as the golden ratio, are widely used in the financial sector, especially in mathematics. So what is the Fibonacci sequence?
The Fibonacci sequence is a sequence of numbers created by adding each number with the number before it. For example, it goes as “1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…”. Only the number sequence does not have to start with 1, it can start with a digit. For example, “5, 5, 10, 15, 25, 40, 65, 105…”. Another important feature of this series is that when each number in the series is divided by the number before it, a result close to the golden ratio is obtained. Since the golden ratio is important, this series of numbers approaching the golden ratio also gains importance.
What is the Golden Ratio?
The golden ratio is the geometric and numerical ratio that is thought to give the most adequate dimensions in terms of harmony between the parts of a whole in art and mathematics. The golden ratio is considered to be 1.618 numerically. It is said that the Egyptians found it. It is possible to come across the golden ratio in many works of art and architecture made by the Egyptians. For example, in the pyramids, the height ratio of the base gives the golden ratio. In addition, the Greeks also used the golden ratio in architectural works.
When we look around, we come across the golden ratio in many places, from pine cones to the bodies of living things, including humans. Let’s give an example to better understand the golden ratio; When you divide the length from your fingertip to your elbow by the length between your wrist and elbow, you will get the golden ratio. You will get this ratio when you divide your face height by your face width.
USING THE FIBONACCI SERIES IN THE FOREX SECTOR
One of the most common uses of the Fibonacci sequence is in the forex sector. There are Fibonacci tools on the platforms used for analysis. With these tools, you can read and analyze the graphs of price increases or decreases. When doing technical analysis, mostly 1.618 and 1.232 ratios are used. Fibonacci Retracement, Fibonacci Fans, Fibonacci Time Zones are commonly used tools in analysis. Let’s examine these tools in detail.
Fibonacci Retracement Levels
After starting from a point and accelerating, it completes its acceleration and returns, and the price may encounter resistance at the points determined by Fibonacci ratios. After completing the movement, the formed price levels can be determined by trading the lowest price and highest price points with the Fibonacci Retracement tool.
How to Use Fibonacci Retracement Fibonacci Retracement will be drawn when you select the Fibonacci Retracement tool on your analysis platform, then come to the lower level of the price range, hold the left button of your mouse and leave it above the upper level. When faced with a chart that is in a downtrend, it is drawn from the upper level to the lower level. Thus, with this tool, resistance and support points will be revealed. For example, there is a bearish movement in the chart above, and the price has encountered serious resistance at the 0.764 and 0.500 levels. As we can see in the chart, the formation of these resistance and support points is not a random event. Fibonacci ratios are associated with price movements. Analysts also make analysis by taking these rules into account.
The movements in the parities or the prices of all other investment instruments should not be expected to occur continuously in a fixed direction. High momentum price movements may encounter resistances or supports in some timeframes and provide reversals. It can move against the direction of progress. In such cases, Fibonacci ratios are very useful for analyzing and predicting price movements. In addition, 23.6, 38.2, 50.0 and 61.8 fibonacci levels are generally taken into account in forex.
Another tool of the Fibonacci Sequence used in the forex industry is the Fibonacci Time Ranges.
Fibonacci Time Zones
Fibonacci Time Zones is one of the other important tools used when doing technical analysis in forex. The tools we mentioned above were the tools used based on the price variable. However, we must say that price is not the only variable, time is also variable and it is very important in analysis. Our tool, which we will describe now, is the tool that allows us to analyze the time variable.
While determining the time intervals in the Fibonacci sequence, we need to consider the numbers as days. In that; Divide into 1, 1, 2, 3, 5, 8, 13, 21, 34. 55, 89… days. Fibonacci Time Zones are used to detect fluctuations in prices.
In the chart we examined, we witness that the price movements change in certain time periods. These movements, which occur in certain periods, can repeat themselves after a while, reflectionsmay occur. These reflections on the chart are seen with the Fibonacci Time Zones tool.
How to Use Fibonacci Time Zones First of all, select the Fibonacci Time Zones tool on your platform, determine your price exit point, and then mark your point with your mouse. While doing this process, vertical lines will appear automatically, the intervals in the lines you see are formed by Fibonacci ratios. By comparing the rises and falls of prices between the vertical lines, you can examine the significant movements between time periods.
Technical analysts say that fluctuations in prices have a history, that is, they are affected by fluctuations in the past. A price action that is taking place has the potential to affect subsequent movements. Therefore, analysts are of the opinion that price movements and past movements are dependent. This opinion of the analysts is another factor that is effective in using the Fibonacci Time Zones tool.
Fibonacci Fans in Forex
Fibonacci Fans is another tool that is used a lot in analysis, although not as much as Retracement. Fibonacci Fans are useful for analyzing and predicting the course of a trend. In the price action with a trend that we will examine, Fibonacci Fans lines can be drawn between the lower level and the intermediate peak and a resistance and support points compatible with the trend can be determined. With the determination, an analysis can be made about the limits within which price changes will remain.
How to Use Fibonacci Fans When using the Fibonacci Fan, the base point is marked and then a guide line is drawn towards the ceiling point. However, when drawing this line, you should be careful to draw it not at the ceiling of the main trend, but at the ceiling of the intermediate trend. You can see it in the example above.
How to Use Fibonacci Fans ? When using the Fibonacci Fan, the base point is marked and then a guide line is drawn towards the ceiling point. However, when drawing this line, you should be careful to draw it not at the ceiling of the main trend, but at the ceiling of the intermediate trend. You can see it in the example above.
Fibonacci Fans is a tool that can be used for both bullish and bearish movements. You can analyze by drawing a line from the bottom to the ceiling in ascending movements, and by drawing a line from the ceiling to the bottom in descending movements.
Regarding the Fibonacci tools, it should be noted that this tool is not a definitive analysis method. Therefore, instead of trading by looking at Fibonacci levels alone, using this tool with other analysis methods may yield more successful results.Share this article