Fibonacci currency trading means using the Fibonacci ratio to decide your entry and exit trading. Fibonacci ratios are also known as fiber levels. Five levels 0%, 23.6%, 38.2%, 50%, 61.8% and 100%. The three most important fib levels are 32.8%, 50% and 61.8%. Markets have been shown to respond with high levels of potential at this level.
Fibonacci ratios are based on the famous Fibonacci sequence obtained by adding two previous numbers to search for a new number. The sequence starts from 0 The first two numbers are 0,1. The following numbers will be obtained by adding the previous two numbers to add the previous two numbers.
So, the sequence develops like 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 …
This sequence was invented by an Italian mathematician in the 13th century. The most important thing about this sequence is that if you divide a number by the next number, you get 61.8%. In the same way if you divide two numbers further into two numbers, you get 38.2%.
These ratios are also known as gold ratios and it has also been found that these ratios have important applications in nature. Unless markets are considered, whenever a new move is initiated, it is observed that currency pairs or stocks have overtaken or outperformed a percentage of a previous move.
This is the basis of the Fibonacci currency business. When a new step starts, we divide the previous step into 6 horizontal levels of 0, 23.6%, 38.2%, 50%, 68.2% and 100%.
If the market moves from swing high to low and then moves, first calculate the swing range by subtracting the high point from the low point of the swing. Then apply this ratio of 0, 0.236, 0.382, .5, 0.682 and 1 to the range and then subtract this number from the swing point. This is where you get the five levels. In the same way, you can calculate these Phoebe levels swing from bottom to top.
But you don’t have to worry too much. Most charting software will automatically calculate the five levels for you. Once the price action approaches this level it will look for confirmation using a candlestick pattern or other indicator for a possible restoration. In currency trading we thus use the Fibonacci ratio.