If you’re wondering how to trade Fibonacci retracements, you’re in the right place. Today, we’ll be breaking down why traders use Fibonacci retracements and how you can apply them in your own trading, and we’ll list our top tips for making the most out of Fibonacci trading.
Trading using the Fibonacci Sequence
Fibonacci retracements are made using the Fibonacci Sequence and the resulting Golden Ratio. The Fibonacci sequence, which is simply a mathematical concept, starts at 0, and ends at 1, each number being the sum the two previous ones. It can be accessed at 0, 1, 2, 3, 5, 8, 13, 21, 34 and so forth.
What we’re interested in is the relationship between the numbers. The Golden Ratio, which is the ratio of numbers, states that a number in a sequence divided by another, like 13/21 will equal roughly 0.618. In the case of 13/21, it’s 0.619. The ratio becomes closer to 0.618 as the sequence continues. There are other calculations that we won’t discuss here, but they also give us complimentary ratios of 0.236, 0.382, and 0.786.
The 0.618 and 0.382 ratios are most important to traders. Despite not being a Fibonacci number, 0.5 is often used. These are the Fibonacci patterns that can be used to trade Fibonacci patterns
