Leonardo of Pisa, the medieval traveller and mathematician, known to posterity by the nickname Fibonacci. They developed a numerical sequence in which each subsequent number is the sum of the previous two, something like the Golden ratio, Leonardo, mathematics. The Fibonacci sequence can be seen in the growth stages fir cones, shells, sea waves, and even the structure of the brain. It would be strange if technical analysts are so loving proven sequence, left Fibonacci numbers without attention.
About Fibonacci traders remembered noticing that the price fluctuation is quite often repeats the number sequence. First it drew the attention of the American Robert Fischer, and described a hypothesis in his book “Application and strategy Fibonacci for traders.”
Repeatedly tested this hypothesis, the traders were really convinced that there is a correlation, and so convincing that the Fibonacci indicator has become one of the most popular technical analysis tools and even have a built-in automatic configuration of a number-of-sale terminals that are traders.
For example, the terminal MT4, using Fibonacci calculations, based on the movement of the price automatically puts the levels of correction, located between the beginning and the end of price movement. Fibonacci levels reflect the percentage of the total movement of the trend. Most popular retracement levels— 23.6%, 38.2%, 50.0%, 61.8% and 76.4%, mostly in price, starting from the level of support or resistance is returned to these values. These points are considered the most favorable for entering the market in a long position. Stop-loss thus is exposed on the other side of the Fibonacci level.
The first level of 23.6% — the point at which a trend is equally likely either to proceed or to yield corrective rebound. Below this level, the next stop will be at the level of 38.2%. If this level will be able to withstand the resistance, the price will return to the previous 23.6%.
Overcoming the 50% prices and the movement towards 61.8% is a pretty solid confirmation, leading to the final phase of the trend, which occurs after overcoming the resistance line of 61.8%. After this it remains only to wait for the mark in 100% and a trend reversal in the opposite direction.
Levels beyond the price movement, are usually located at the positions 138.2% and 161.8%, are called expansion levels. It is possible to navigate where the price will go, it is also the best point to exit the market. It is easy to see that the levels with a difference of 100 units, repeat the correction levels.
Fibonacci lines — so popular among traders the tool that is used almost everywhere, shaping the same behavior of traders and a kind of tradition of trading strategies. As a rule, on approaching these levels, the market volume is growing. In these circumstances, the Fibonacci levels become really strong support or resistance and effectively replace the building of a strong price levels. The breakout or the pullback from one of the Fibonacci lines is traditionally provokes the explosive effect of the triggering of pending orders and, given the size of the market can affect the trend as a whole.
It is important to consider that the closer the price to the level of Fibonacci, the more likely speculative leaps. In order not to fall into this trap, it is better to wait until the trend of certainty and open positions only after confirming a trend direction.
The location of Fibonacci retracement does not change depending on the selected timeframe, however, the forecast will be validae, if you build it from more time to less: this will allow you to see the intermediate correction necessary for forming a complete picture of the behavior of the trend.