What is this Fibonacci “Forex sequence”?
The Fibonacci (or simply "Fibonacci") sequence of numbers refers to a set of numbers that start with the number 1 or 0, followed by another number 1, and then the pattern continues based on the rule that says: all subsequent numbers (or Fibonacci numbers) will be equal to the number of the two preceding numbers (or the sum of the two previous numbers).Today, Fibonacci levels are used in all types of trading, including stocks, futures, commodities, cryptocurrencies and also Forex trading.
Fibonacci in Forex Trading
That’s all great, but how does it affect my Forex trading? Well, Fibonacci levels, with their setbacks and targets, are one of the best tools in the whole field of technical analysis. Its support and resistance levels are exact and explicit. More importantly, Fibonacci offers very precise and well-defined input and output levels. Fibonacci levels (or Fibs) are derived from the sequence of Fibonacci numbers.
Fibonacci Sequence Levels - Forex
The Fibonacci number sequence is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, etc. This series of numbers is created by adding the last two numbers together:
0 + 1 = 1
1 + 1 = 2
1 + 2 = 3
2 + 3 = 5
3 + 5 = 8 etc.
If we apply it to larger numbers, we will still have the same perfect Fibonacci sequence.
89 + 144 = 233
144 + 233 = 377 and so forth…
Importance of the Fibonacci sequence - Forex
You may wonder why the sequence of Fibonacci numbers are so important in Fibonacci Forex trading. There are many reasons:
The Fibonacci number sequence is respected in the charts, as most traders use it.
Fibonacci levels sequence is used to calculate Fibonacci retracements and targets, which are frequently used in the markets.
Those numbers are used alone in trading in the markets, but we can also see them around us: in crystal formations, or when played in musical progressions. In the growth of the population, or even in the DNA spiral. The entire human body by itself is full of Fibonacci relationships.
Fibonacci Forex - Fib Fan Strategy
To answer more directly the question of how Fibonacci is used in Forex, we will present you a strategy based on this method. The Fibonacci fan is made up of three lines fixed to the center numbers of a Fibonacci retracement. Those are:
Often, the main level of support for a Fibonacci fan is 61.8%. By applying the following rule, we will have a good opportunity to enter the market based only on trading the Fibonacci range, with the Fibonacci formula.
The Fibonacci fan is an indicator included by default in MetaTrader 4 (MT4) and MetaTrader 5 (MT5) and you can draw it directly. Once the price breaks the 38.2% level, it will go towards the 61.8% level. We can enter 38.2, looking for 61.8. This rule works best in an environment where there is a defined trend, but it can also be used against the trend. With LVMexchange we use Fibonacci retracement in our analysis to predict how an asset will continue along it’s path, essentially, will it rise or fall. If these numbers seem daunting, we have an education centre and account manager who can help you through it.