expand/collapse risk warning

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

75% of retail investor accounts lose money when trading CFDs with this provider.

Regulator:

×
CySEC

Skilling Ltd, is regulated by the Cyprus Securities and Exchange Commission (CySEC) under CIF license No. 357/18

Continue
FSA

Skilling (Seychelles) Ltd, is authorized and regulated by the Financial Services Authority (FSA) under license No. SD042

Continue

What are Fibonacci Retracements?

Blog Images - Skilling (8).png

Fibonacci Retracements (often called Fibonacci's) are a very popular charting tool amongst technical traders. They take their name from the 13th century mathematician Leonardo Fibonacci. He was very famous in his time (you may have heard of him in other fields), and indeed his ideas were originally not intended for trading at all, given that trading the markets didn’t exist in their modern form during his lifetime.

The Fibonacci numbers can be found in other areas of life. Nature, Art, Architecture.

Untitled design (13).png

Fibonacci Retracements became more popular over the last few decades in trading because of the mathematical relationships of the sequence, which are expressed as ratios. No one definitively knows why Fibo levels work...although certainly many traders do whilst using them.

Fibonacci sequences are a series of numbers where each number is calculated by adding the two previous numbers. Here is the Fibonacci sequence of numbers that he identified:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, etc.

In terms of trading, the most important Fibonacci Retracement levels: 23.6% 38.2% , 61.8% , 161.8% which are based on the following calculations:

The 38.2% ratio is found by dividing one number in the series by the number that is found two places after. For example: 55/144 = 0.3819.
61.8% - also referred to as golden ratio is found by dividing one number in the series by the number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.
The 23.6% ratio is found by dividing one number in the series by the number that is three places to the right. For example: 8/34 = 0.2352.

Experience Skilling’s award-winning platforms

Try out any of Skilling’s trading platforms on the device of your choice across web, android or iOS.

Sign up
Phone-Perspective 1.png

If you apply other Fibo numbers to these formulas you will notice that some results differ slightly from the above mentioned percentages. This is because they represent approximated results.

'Fibo Retracement'

Among traders it is a common practice to use the Fibo levels to find support or resistance in areas of potential trend reversals. Fibonacci Retracement levels are created by taking the distance of a low and a high of price on a chart, and dividing it by Fibonacci ratios - this then gives you the support and resistance levels.

The first thing you should know about the Fibonacci tool is that it works best when the market is trending. When using Fibonacci FX, stocks and commodities can all be traded using the Fibonacci Retracement of a trend.

To place Fibonacci Retracement levels in a chart, first, you need to determine the main trend. If there is a bullish trend, you need to draw the Fibo Retracements from the point where the trend started (low) to the point where it ended (high). (see picture below) However, if the main trend is bearish, the starting point of Fibo Retracements will be the first peak of trend, while the ending point will be the last valley.

Untitled design (14).png

If you use the Fibonacci Retracement levels, you need to keep in mind the following:

  1. Fibo Retracement levels can alert traders of a potential trend reversal, resistance or support area.
  2. However, DO NOT use it alone. It is often used with other technical analysis indicators such as moving average, stochastics, RSI, or MACD.
  3. And always wait for confirmation. Do not forget, if you stick to the high probability trades you’ll have a better chance to come up ahead in the long run.

Skilling Summary
Fibonacci’s are a more advanced form of technical analysis and unique in their design. However, they are extremely popular and used by many professional traders. Although they may seem somewhat almost mystical in nature, for whatever reason (possible because so many people are watching the levels they become self-reinforcing) they seem to work for a lot of people. In addition, although the ratios may seem obscure at first, once the lines are drawn on the chart they become less important (as the Skilling platform automatically works them out and plots them for you). So, overall, Fibonacci's can play a very important role for all advanced traders.

Not investment advice. Past Performance is not indicative of future results.

Related Articles

Inverted hammer: what is it and how to identify it in trading

Discover the inverted hammer candlestick pattern in forex trading, including how to identify it and its significance. Se...

What is the Commodity Channel Index?

The Commodity Channel Index (or CCI) indicator, is an oscillator that was developed by Donald Lambert in the 1980’s. It ...

RSI: Relative Strength Index

The Relative Strength Index (RSI) is an extremely popular momentum indicator, perhaps the most well-known one by J. Well...

Important notice

This page/website is not directed to EU clients and falls outside the European regulatory framework and is not in the scope of (among others) the Markets in Financial Instruments Directive (MiFID) II.
By continuing you acknowledge to view the content provided by Skilling (Seychelles) Limited, which is authorised and regulated by Seychelles Financial Supervisory Authority, and that your decision was made independently and at your exclusive initiative and no solicitation or recommendation has been made by Skilling or any other entity within the group.

Continue

Important notice

This page/website is not directed to EU clients and falls outside the European regulatory framework and is not in the scope of (among others) the Markets in Financial Instruments Directive (MiFID) II.
By continuing you acknowledge to view the content provided by Skilling (Seychelles) Limited, which is authorised and regulated by Seychelles Financial Supervisory Authority, and that your decision was made independently and at your exclusive initiative and no solicitation or recommendation has been made by Skilling or any other entity within the group.

Continue