Author: Alexander Vladimirov
Who was Leonardo Fibonacci and what was his contribution?
Born in Pisa during the late 12th century, Fibonacci is one of the most influential mathematicians in the history of our world. He is seen as one of the main cause for the revival of mathematics in Europe during a very difficult time when the crusades were taking place. Of his most famous works is the book called Liber Abaci meaning "The Book of Calculation". In this book he describes new methods of doing calculations and also introduces the Fibonacci Number Sequence and Golden Ratio.
Fibonacci numbers in Trading
As Fibonacci’s work can be used to describe many aspects of the world which surrounds us, it can also be used to make sense of the currency markets. The ratios which he’s found are also valid for us traders. By adding Fibonacci to your trading, you can locate future targets for stops and exits as well as find very accurate entry level, which should increase your return on investment, if used correctly. The most important number or ratio is the 61.8% or .618 levels. Other most commonly used Fibonacci levels are the 38.2%, 50%, and sometimes 23.6% and 76.4%.Choosing the Finonacci level you want to interact with largely depends on the strength of the trend you’re trading with.
If you have a a strong trend, which we always try to catch, you would look for a minimum retracement around 38.2% or maybe 50%; while in a weaker trend, the retracements can be 61.8% or even 76.4%. In any case the price breaks the 100% mark of the prior move the current move would be invalidated.
Here’s a full list of the best Fibonacci levels to use:
11.40%; 23.60%; 38.00%; 50.00%; 61.80%; 70.70%; 76.40%; 88.60%; 100%; 112.80%; 123.60%; 127.00%; 138.20%; 150.00%; 161.80%; 176.40%.
Keeping it simple with Fibonacci
Generally, the use of Fibonacci can be added to most trading strategies. However, there are many different types of Fibonacci tools you can use and it can become quite confusing. For a trader looking to keep things simple I would use the regular Fibonacci retracement tool on a 4HR chart. Always go with the trend and look to target the ends of retracements at the 61.8% level. Try to combine the Fibonacci levels with equidistant price channels. If the price is at both a Fibonacci resistance level and a trend line resistance level, then you’ll have a high probability trade setup. Stop loss can be placed slightly above the 88.6% ratio.
At Evestin Forex, Fibonacci levels are that we use in our Satoshi Robot. The Satoshi robot uses Fibonacci extensions for TP
and Fibonacci retracement for Entry's. As we’re on the topic of simple – using trading automation alongside a manual strategy can greatly simplify and enhance your trading. Sign up below and become a part of the Evestin Forex Community! As a 'Robot trader' you get your own copy of our trading robots and space on Evestin Virtual Private Server (VPS).