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Using Fibs

The document discusses Fibonacci ratios and their use in technical analysis and financial markets. It explains that Fibonacci ratios are based on a numerical sequence identified by Leonardo Fibonacci where each number is about 1.618 times greater than the preceding number. Some key Fibonacci ratios like 61.8%, 38.2%, and 23.6% are used to determine support and resistance levels. The document provides examples and explanations of how Fibonacci retracements, projections, expansions, and fans can be used to identify potential price levels and predict market movement. It emphasizes that different Fibonacci tools should be used in the correct situations for analysis.

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115 views

Using Fibs

The document discusses Fibonacci ratios and their use in technical analysis and financial markets. It explains that Fibonacci ratios are based on a numerical sequence identified by Leonardo Fibonacci where each number is about 1.618 times greater than the preceding number. Some key Fibonacci ratios like 61.8%, 38.2%, and 23.6% are used to determine support and resistance levels. The document provides examples and explanations of how Fibonacci retracements, projections, expansions, and fans can be used to identify potential price levels and predict market movement. It emphasizes that different Fibonacci tools should be used in the correct situations for analysis.

Uploaded by

toto2000
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Download as PDF, TXT or read online on Scribd
You are on page 1/ 16

Understand & Use Fibonacci Ratios

Part.1
Basic Ratios
by Sunil Mangwani

www.fibforex123.com

Fibonacci ratios

Fibonacci ratiosare a very popular tool among technical traders and are based
on a particular series of numbers identified by mathematician Leonardo
Fibonacci in the thirteenth century.

The Fibonacci sequence of numbers is as follows:


0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.

Eachterm in this sequence issimply the sum ofthe twopreceding terms and
sequence continues infinitely.

One of the remarkable characteristics of thisnumerical sequenceis thateach


number is approximately 1.618 times greater than the preceding number.

This common relationship betweenevery number in the series is the foundation


of the common ratios used inretracement studies.

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The Golden ratio

The key Fibonacci ratio of 61.8% - also referred to as "the golden ratio"or "the
golden mean" - is found by dividing one number in the series by the number
that follows it. For example:8/13 = 0.6153, and 55/89 = 0.6179.

The 38.2% ratio is found by dividing one number in the series by the number
that is found two places to the right. For example: 55/144 = 0.3819.

The 23.6% ratio is found by dividing one number in the series by the number
that is three places to the right. For example: 8/34 = 0.2352.

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Fibonacci ratios in the markets

For some reason, these ratios seem to play an important role in the financial
markets, just as they do in nature, and can be used to determine critical points
that cause price to reverse.

Price has an uncanny way of respecting Fibonacci ratios, often quite precisely.
Hence one can use the Fib ratios to ascertain the correct technical levels.

Frankly there is nothing magical about these numbers, and price reacts at these
levels simply because a majority of traders are following the ratios.

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The proper use

Another common mis-interpretation of the Fibonacci numbers is that traders


tend to use the same Fibonacci ratio for all kinds of situations.

Just like the different tools in a carpenters tool box, each ratio should be used
in a particular situation.

While you obviously cannot use a hammer for a job that requires a screw driver,
similarly you cannot use Fibonacci retracements in a situation where the
Fibonacci fans are required.

Let us have a detailed look at the different Fibonacci ratios and their uses for
the correct situations.

Using these ratios in a proper way gives us a tremendous advantage over the
crowd.

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Fib retracements and projections


Fib retracements

The basic use of Fibonacci retracements is to find potential levels of support or


resistance behind the market. If the market is moving up and making new
highs, Fib retraces will draw levels BELOW the current price.

Ideal situation to use in

To estimate the horizontal levels of support/resistance for a pullback in an


existing trend.

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Example of Fib retracements

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Fib projections

The Fibonacci projections are used to determine the expected price targets,
once it has crossed the Fibonacci retracement levels.

If we are anticipating price to begin an uptrend, we can use the last prominent
down wave to determine the expected upside targets.

Thus we are projecting the price action forward, using the last prominent
moves.

Ideal situation to use in


For estimating the price targets after the pullback is completed. We project the
price action forward, estimating that it will reach the fib levels.

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Example of Fib projections

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m

Elliot waves

Go hand in glove with Fib retracements & projections. The waves adhere to
these ratios quite accurately.

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Fib Expansions

The fib expansions determine where prices could potentially move to. The
advantage is that these levels are drawn front of the market.

Ideal situation to use in


For estimating the price objectives of a 1-2-3 pattern.

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Example of Fib expansions

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Fib Fans

The Fibonacci fans are diagonal lines that use Fibonacci ratios to help identify
key levels of support and resistance.

Ideal situation to use in


1.) To determine the future levels of support/resistance
2.) For price in an existing trend - when price pulls back, and we need to determine
the extent of this pullback.

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Example of Fib fans

To determine the future levels of support/resistance.

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Example of Fib fans

To determine the extent of a pullback.

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End

I hope this presentation can help you gain that extra Edge over the market.

Visit my website for more educational and practical information on the


correct use of technical analysis.

We dont just teach, but also implement the knowledge in the live market.

www.fibforex123.com
Please feel free to contact me about further information at:
[email protected]
[email protected]

www.fibforex123.com

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