Understanding Fibonacci Sequence

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Understanding Fibonacci Sequence

Fibonacci Price Extension Levels
Fibonacci Price Extension needs 3 points to form it. In an upward trend, it needs the lowest point, the highest point, and final point.

1 hour time frame with USD/CHF

To get a Fibonacci extention level, you need to determine 3 points. In an upward trend, the lowest point 1.2447, the highest point 1.2593, and the final point 1.2541.

The levels created are 1.2597 (0.382), 1.2631 (0.618), 1.2687 (1.000), 1.2743 (1.382), 1.2760 (1.500), and 1.2777 (1.618)

(we will upload the picture soon)

You can see the next market movements:

The market goes upward to the level 0.500
The market is back to the final point.
Going back to level 0.500
Going downward a little bit
Going upward again to the level 0.618
Going back to level 0.382, where that level changes into support
Going upward to level 1.382
A little consolidation
Finally going up to level 1.500

From this example, you will see that the movement usually find the resistance. It is not always, but it happens quite often.
From the above case, the resistance is on the level 0.500

There are some problems which are likely to occur:

You will never know if a price can pass level 0.500
If you place position above level 0.500 to overcome the first problem, there will be second problem. It is when the price movement pass the level 0.500 and 0.618, but pull back to the level 0.381.

You will also see the example of Fibonacci Extension Level in a downward trend below.

1 hour time frame with EUR/USD

You draw 2 lines, started from the highest price 1.21377 to the lowest price 1.2021 and to the final price 1.2085.

Fibonacci Extension Level derived are 1.2041 (0.382), 1.027 (0.500), 1.2018 (0.618), 1.1969 (1.000), 1.1925 (1.382), 1.1911 (1.500) and 1.1897 (1.618).

(we will upload the picture soon)

What are the possibilities on the price movement?

The market will fall to level 0.382 that will be support
The market will then move within the final price and level 0.382
The price will pass level 0.382 to 0.500
Finally it passes level 1.000

(we will upload the picture soon)

As a forex trader, you are required to combine some technical analysis methods where Fibonacci is one of them. If you use Fibonacci only, you will experience many trapping false forex signals.

The key to get an effective trading system is combining some (but not too many) forex indicators.

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