How to Trade With Fibonacci Retracements and Extensions
- 14 years ago
'''►► http://ForexAutopilotSystem.org - ''' Fibonacci retracements and extensions is one of the more obscure forms of trading indicator although it is also considered one of the most powerful and reliable. Nobody can say for certain why it works but the most important consideration for all traders using it is that it is highly reliable and does, for some reason or other, work. Essentially it functions by placing a series of ratios between two chosen points on a candlestick chart. These ratios, more often than not, accurately predict the major resistance and support lines for a particular security. With this information a trader can confidently place pending buys and sells and they can accurately predict price targets for future movements. The beginnings of Fibonacci retracements and extensions can be traced back to the 13th century. During this period an Italian mathematician named Leonardo Pisano, nicknamed Fibonacci, developed the Fibonacci sequence. This was a sequence of numbers which determined that when one number was divided by its predecessor it would equal approximately 1.6, which happened to be the golden ratio. It was discovered that this sequence and the several ratios that derived from it would appear again and again in nature and this suggested that they contained some form of significance. The Fibonacci ratios considered significant are 23.6%, 38.2%, 50%, 61.8% and 100%. The connection from these ratios to trading seems very farfetched and uncertain but all traders need to be aware of is that they work successfully in a number of instances. It is uncertain whether they work due to their significant nature or whether they work because most traders use Fibonacci retracements and therefore play the market according to the ratios laid out. In this sense it could be deemed a self-fulfilling prophecy but regardless of the reason, the results are generally profitable. Traders can apply these ratios to a standard candlestick chart. Firstly, two extreme points of a security's price must be ...