The Fibonacci sequence is a series of numbers that has been used by traders and investors for centuries. It is based on the mathematical concept of the Golden Ratio, which is found in nature and in many aspects of human life. The Fibonacci sequence can be used to identify high and low points when trading stocks, commodities, currencies, or other financial instruments.
The Fibonacci sequence begins with 0 and 1. Every subsequent number in the sequence is the sum of the two preceding numbers: 0+1=1; 1+1=2; 2+1=3; 3+2=5; 5+3=8; 8+5=13; 13+8=21 etc. The ratio between any two successive numbers in this series approaches 1.618 (the Golden Ratio). This ratio is often referred to as Phi or Φ (the Greek letter phi).
When using Fibonacci levels to identify high and low points, traders will typically look for support or resistance at key levels within the Fibonacci sequence. These levels are usually determined by taking a high point and a low point on a chart (such as a stock price chart) and then dividing it into sections using the ratios from the Fibonacci sequence: 23.6%, 38.2%, 50%, 61.8% and 100%. These percentages represent areas where there may be support or resistance for prices on either side of them – i.e., prices may move up towards these levels before reversing back down again, or vice versa depending on market sentiment at that time.
Traders will also look for potential reversals at key Fibonacci retracement levels such as 38% or 61%. This means that if prices have been trending up but then start to pull back from their highs, they may find support at one of these retracement levels before continuing their upward trend again – or they could reverse direction completely if there’s enough bearish sentiment in the market at that time!
In addition to identifying potential reversals, traders can also use Fibonacci extensions to predict future price targets after an initial move up (or down). For example, if prices have moved up by 38% from their lows then traders may expect them to continue moving higher until they reach one of the extension points such as 161%, 261% etc., which would represent new highs beyond what was previously seen before this initial move began!
Overall, understanding how to use fibonacci can help traders identify potential areas where prices could reverse direction as well as providing them with targets for future price movements after an initial move has occurred – all while keeping an eye on macroeconomic trends so they don’t get caught out by unexpected changes in sentiment!