LESSON - FIB SETUPS
Most of you know the ABCD setup as a most common setup in Trading... Especially Forex and candlestick based trading..
The Fibonacci sequence is significant because of the so-called golden ratio of 1.618, or its inverse 0.618. In the Fibonacci sequence, any given number is approximately 1.618 times the preceding number, ignoring the first few numbers. Each number is also 0.618 of the number to the right of it, again ignoring the first few numbers in the sequence. The golden ratio is ubiquitous in nature where it describes everything from the number of veins in a leaf to the magnetic resonance of spins in cobalt niobate crystals.
Fibonacci numbers and lines are created by ratios found in Fibonacci's sequence.
Common Fibonacci numbers in financial markets are 0.236, 0.382, 0.618, 1.618, 2.618, 4.236. These ratios or percentages can be found by dividing certain numbers in the sequence by other numbers.
While not officially Fibonacci numbers, many traders also use 0.5, 1.0, and 2.0.
The numbers reflect how far the price could go following another price move. For example, if a stock moves from $1 to $2, Fibonacci numbers can be applied to that. A drop to $1.76 is a 23.6% retracement of the $1 price move (rounded).
Two common Fibonacci tools are retracements and extensions. Fibonacci retracements measure how far a pullback could go. Fibonacci extensions measure how far an impulse wave Could go.
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