Fibonacci Trading

Babypips Elementary - Third Grade

Who was Leonardo Fibonacci?

A famous Italian mathematician who discovered a series of numbers and ratios describing natural proportions.

How is the Fibonacci number series generated?

Starting with 0, followed by 1, then each subsequent number is the sum of the two preceding ones (e.g., 0, 1, 1, 2, 3, 5, 8, 13...).

What is the 'golden ratio' derived from the Fibonacci sequence?

Approximately 1.618 (or 0.618 when taking a number divided by its succeeding higher number), found in many natural objects, geometry, art, and architecture.

What are the key Fibonacci retracement levels traders need to know?

0.236, 0.382, 0.618, 0.764.

What are the key Fibonacci extension levels traders need to know?

0, 0.382, 0.618, 1.000, 1.382, 1.618.

Why do traders use Fibonacci retracement levels?

As potential support and resistance areas, based on the theory that after big price moves, price will retrace partway before resuming its original direction.

Why do Fibonacci levels tend to work in trading?

Because so many traders watch these same levels and place buy/sell orders and stops, making them a self-fulfilling prophecy through collective actions.

What do traders use Fibonacci extension levels for?

As profit-taking levels.

What two points do you need to identify on a chart to apply Fibonacci levels?

A Swing High and a Swing Low