Fibonacci Levels Explained:
The Fibonacci Sequence is the series of numbers:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, …
The next number is found by adding up the two numbers before it.
Here is a longer list:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, 6765, 10946, 17711, 28657, 46368, 75025, 121393, 196418, 317811, …
This is the most interesting part of Fibonacci numbers, especially for traders. If you take any two successive Fibonacci Numbers, their ratio is very close to the Golden Ratio “φ” which is approximately 1.618034
The fun part is that the reverse of 1.618034 is equal to 0.618034 (Don’t believe it. Try it yourself)
The bigger the pair of Fibonacci Numbers, the closer the approximation.
How does a Trader use Golden Ratio / Fibonacci numbers?
Fibonacci calculator can help set two set of numbers:
1) Support level – This can be calculated by the Fibonacci retracement calculator. This the level at which market finds more demand. It can also be identified on a technical basis by seeing where the stock has bottomed out in the past.
2) Resistance level – This can be calculated by the Fibonacci extension calculator. These are the levels at which market finds more supply.
If the Fibonacci calculator is used with Elliot Waves, it can give remarkable results to traders. A trader could use these ratios to find high probability trades with very small stop loss.
Alternatively, you may use these ratios to find Elliott Waves extensions and to book profit near those levels.
So how does the Fibonacci calculator work?
Fibonacci calculations can be used for any stock and with any time frame. Use the retracement levels for the timeframe you would like to trade. It is a good idea to keep an eye on multiple retracement levels in various timeframes.
For EW experts, Fibonacci calculator is a simple and useful tool that can help you to calculate Fibonacci extension and retracement levels for the market price.
In any market (bull or bear), the corrections usually end near golden ratio or one of the other Fib retracement levels. The extensions are used to find next impulse targets.