What is Fibonacci?
The idea behind it is the very first thing that you need to know about the Fibonacci tool in trading. Leonardo Pisano Bigollo was an Italian mathematician, more commonly known as Fibonacci, who lived in the late 12th-early 13th century. Among other math enthusiasts, Leonardo really stood out as he introduced the numeral system to the West and defined a series of Fibonacci numbers.
By posing and solving an issue involving the rabbit population, the Fibonacci sequence was created. Fibonacci introduced the series, which probably originated in the 6th century, using idealized assumptions. Every number in the series, beginning with 0, 1, 2, 3, 5, 8, 13, 21, and so on is the sum of the preceding two. A 0 at the beginning is also used in the current version of the series.
Now, what does trading have to do with all this? Well because the Fibonacci series managed to survive for so long, it’s fair to say on several occasions that it came in handy. All the way up to modern-day trading, where the sequence numbers are used to measure the precise levels that the price can communicate with on the chart. Fibonacci retracement ratios are also called fib levels.
How to Calculate Fibonacci Retracement Levels:
You first have to understand where the retracement levels come from in order to begin trading using the Fibonacci series. Forex retracements are temporary market reversals within broader patterns. And the thresholds of retracement are used as virtual limits from which the motion can bounce off. The analysis of the Fibonacci retracement allows traders to visualize these limits and make trading decisions more efficient. Since the Fibonacci retracement formula is integrated into the MT4 and others, instrument, a general understanding of the basic math behind it can be beneficial.
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