Fibonacci number sequence and ratios are a frequently used tool for technical analysis in financial markets. This mathematical sequence was discovered by Leonardo Fibonacci and is a sequence in which each number is equal to the sum of the two numbers before it. In financial markets, the Fibonacci sequence of numbers forms the basis of many tools used to analyze price movements.
Fibonacci levels also work nicely as Support-Resistance. In particular, Fibonacci retracement levels and Fibonacci extension levels help traders predict price movements. Fibonacci retracement levels help identify points where price declines from an uptrend or rises from a downtrend. These levels provide estimates of how far the price will retreat.
Fibonacci retracement levels are levels corresponding to 23.6%, 38.2%, 50%, 61.8% and 100% of the price's previous movement. Fibonacci extension levels are used to make predictions about whether the price trend will continue and how much it can rise. These levels correspond to 0%, 38.2%, 50%, 61.8%, 100%, 161.8%, 261.8% and 423.6% of the previous movement of the price. Fibonacci number sequence and ratios are an effective tool that can be used when investing in financial markets. However, it can be misleading when used alone and is recommended for use in conjunction with other technical analysis tools.