Fibonacci Levels for Trading – Freaky Maths

Fibonacci Levels for Trading – Freaky Maths or just some made up levels for Traders?

The first thing to understand is where these Fibonacci levels come from, so back to school for some Basic facts:

fibonacci levels

 

1.  The Fibonacci number sequence is where it all begins. The sequence begins with 1 and 1 and then each subsequent number is the sum of the previous two. The image below shows this clearly.

fibonacci levels2.  The Golden Ratio is formed by dividing the consecutive pairs of number in the sequence to infinity as below.  As you will see as the calculations continue the results converge towards the Golden Ratio 1.618 and is classed as a constant and sometimes called the Devine Proportion.  Also note that the inverse or reciprocal of 1.618 is 0.618.

fibonacci levels

fibonacci levels

The Golden ratio 1.618 occurs in mathematics, design and in nature.In trading there are many different strategies and uses Fibonacci levels so I will concentrate on the main levels that I use in my strategies and that are most commonly used throughout the trading world.  The main ratio’s I use are 0.382, 0.50, 0.618, 0.786, 1.00, 1.27 and 1.618.  I also use 0.236 but alway round that to 0.25 as I mainly use it as minimum point of a pull back as you will see further in this article.  All these Fibonacci Levels are related mathematically to the main Golden Ratio as below, the Freaky Maths Bit:

1.0 – 0.618 = 0.382

0.618 x 0.618 = 0.382

0.618 – 0.382 = 0.236

0.382 x 0.618 = 0.236

Square root of 0.618 = 0.786

0.618 is the reciprocal of 1.618

Square root of 1.618 = 1.272

0.786 x 1.272 = 1

There are more and many more ratio’s but I think you get the Freaky.

I will be using charts from my live trading diary at www.mytradingbuddy/trading-diary as examples as they are real trades with Fibonacci levels that have occurred and not some fictitious theory picture/chart.

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Paul Bratby
Paul is an ex British Soldier who served 17 years an Engineering Manager in the British Army. Since leaving the Army he has held high level positions in Companies around the globe with the most recent running the Liberia (West Africa) Country Operations for a Gold Exploration and Mining Company. In 2014 he launched www.mytradingbuddy.com which continues to grow massivel as a free resource to all traders.
He has been trading his own pension and savings accounts full time and has written and electronic trading journal which he will publishing as a book in the near future.
Paul Bratby

Paul Bratby

Paul is an ex British Soldier who served 17 years an Engineering Manager in the British Army. Since leaving the Army he has held high level positions in Companies around the globe with the most recent running the Liberia (West Africa) Country Operations for a Gold Exploration and Mining Company. In 2014 he launched www.mytradingbuddy.com which continues to grow massivel as a free resource to all traders. He has been trading his own pension and savings accounts full time and has written and electronic trading journal which he will publishing as a book in the near future.

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