The Fibonacci sequence is a set of numbers in which each number is the sum of the two numbers before it. This sequence starts with 0 and 1, and the first few numbers are 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so on. In trading, Fibonacci numbers are often applied to identify potential support and resistance levels in a price chart.

What are the Fibonacci retracements?

There is a tool called Fibonacci retracement. It draws horizontal lines on the chart at key Fibonacci levels of 23.6%, 38.2%, 50%, 61.8%, and 100%.

These levels are calculated based on the previous price movement. You can use them to spot potential areas for buying or selling an asset (i.e. point to enter or exit a trade.)

Fibonacci can be of help if you need to identify the trend, draw the retracement levels, define support and resistance levels, and confirm other analytical tools. Let’s see how you can use Fibo to analyze the price at the beginner level.

How to identify support and resistance levels with Fibonacci?

1. Identify the swing high and swing low points. These are the two points that define the prior price movement.

2. Apply the Fibonacci retracement tool. Use the swing high and swing low as the reference points. The tool will draw horizontal lines on the chart at the key Fibonacci levels of 23.6%, 38.2%, 50%, 61.8%, and 100%.

3. Identify potential support and resistance levels. The 38.2%, 50%, and 61.8% levels are often considered the most important levels.

4. Use other tools for confirmation. You may also use other technical analysis tools, such as trend lines or moving averages, to confirm potential support and resistance levels.

5. Make informed trading decisions. Once the levels are identified, use this information to open a position. For example, buy an asset near a support level or sell an asset near a resistance level.

What else to use with Fibonacci?

To confirm the Fibonacci analysis, you may use Moving Averages, trend lines, candlesticks patterns, Relative Strength Index (RSI), and Moving Average Convergence Divergence (MACD).