Low fibonacci number

Fibonacci numbers are widely used in trading for market forecasting, especially in stocks, forex, and cryptocurrencies, and Fibonacci Retracement and Fibonacci Extensions are two of the most common tools used to help traders predict the future direction of the market by identifying potential resistance and support levels. The Fibonacci Retracement and Fibonacci Extensions are two of the most commonly used tools to help traders predict the future direction of the market by identifying potential resistance and support levels. In this article, we will discuss the basic concepts of these tools, and their application techniques, and explain them with practical trading examples, as well as how to use Fibonacci-related tools, such as the Fibo calculator and the Fibonacci tool in the Thinkorswim platform, to help traders improve their trading accuracy.

Basic Concepts of Fibonacci Series

The Fibonacci sequence is a sequence of numbers proposed by Italian mathematician Leonardo Fibonacci in the 13th century, where each number is the sum of the previous two. The first few numbers of the series are 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233 ...... There are an extremely large number of numbers after the ellipsis, which are not listed here. This series has several characteristics, the first characteristic is that each number, is the sum of the first two numbers, for example, 5 this number, is by the previous 2, and 3 sums up to get, 34 this number is by the previous 13 and 21 sums up to get, every number in the series magically in line with this law. The second characteristic of this series is that if we divide any number by the next number, we can find that the answer will be more and more close to 0.618, for example, 3 divided by 5 is equal to 0.6, 8 divided by 13 is equal to 0.625, 144 divided by 233 is equal to 0.61802575, we can see that the number of the answer is more and more close to 0.618. 0.618 is also known as the golden ratio, which is widely found in nature and works of art, and is also considered to be one of the key ratios for market trend reversals. In technical analysis, the Fibonacci retracement and expansion ratios are derived from this golden ratio.

Fibonacci Retracement Tool

This tool uses the Fibonacci series to analyze the retracements of a stock price. The retracements studied include downward retracements after a period of upward price movement, as well as upward retracements after a wave of downward price movement.

The main function of Fibonacci retracement is to help us determine the strength of the trend, as well as analyze the stock price in a period of uptrend or a period of downtrend, in which price level there is potential resistance and support. A horizontal line on the chart is a Fibonacci retracement of a support or resistance line.

Fibonacci retracement of the basic method of use is, in the technical charts, we point to any two high and low points. You can draw a Fibonacci retracement of the graph. The graph can be a period of uptrend or downtrend split into multiple segments.

It is based on key ratios of the Fibonacci series (e.g. 23.6%, 38.2%, 50%, 61.8%, etc.). Common retracement levels include:

23.6%: less severe retracements

38.2%: common retracement level

50%: although not a number in the Fibonacci series, it is often used as a key level

61.8%: the golden mean point, considered the most important retracement level

Trading Example: Let's say that a stock has risen from $100 to $200 in an uptrend. When the price starts to retrace, traders can use the Fibonacci retracement tool to plot retracement levels between $100 and $200. Common support levels may occur near 38.2% ($161.8) or 61.8% ($138.2). Assuming that the stock can't fall any further by retracing to this horizontal level of 38.2%, then consider buying at this position for deployment. With the above example, we know that by watching to see if price reverses at these retracement levels, traders can determine the timing of an entry.

Fibonacci Extension Tool

Unlike the Fibonacci retracement tool, the Fibonacci extension tool is primarily used to predict potential areas of continuation or reversal of a price trend. It is usually applied during a price cycle, such as an uptrend that starts at the top and then pulls back to a retracement point.

The Fibonacci Extension tool is typically used in two ways:

Finding target levels: Predicting pressure or support levels that the price may encounter after a breakout.

Confirming a trend: Determining whether the current trend is likely to continue.

Steps in using the Fibonacci Extension Tool

Suppose you are looking at the price chart of a stock or currency pair and notice that it is experiencing an uptrend. You can use the Fibonacci Extension tool to predict possible future price targets:

Selecting a Volatility Segment: First, you need to select a distinct segment of the trend on the price chart. For example, for an uptrend, select a segment of price fluctuations from lows to highs.

Determine the retracement position: The price may retrace after a rise, usually to the level of a certain Fibonacci ratio (e.g. 23.6% or 38.2%).

Pulling Extensions: Plotting a Fibonacci line on the chart from the low to the high, and then drawing an extension from the retracement point back up. Depending on the extension ratio, the Fibonacci Extension tool will show several price levels on the chart, such as 1.618, 2.618, 3.618, etc.

Observe the reaction: These extension levels become potential target zones for the price. If the price reaches these zones and the reaction is obvious, such as a price retracement or a release, then these levels may become your new operating reference.

Specific example

Let's say you are looking at the chart of a stock that rose from $10 to $20 and then started to pull back.

Step 1: Choose a volatility band. You choose the uptrend segment from $10 to $20 as your base.

Step 2: Price retraces to $18. This is a typical retracement zone and you can start using the Fibonacci Expansion tool at this position.

Step 3: Draw the expansion line. You plot the Fibonacci retracement line from the $10 to $20 up leg, and assuming it retraces to $18, then you can start plotting the extension line.

Step 4: Extension targets. The Fibonacci Extension tool may show multiple price targets, such as 23.6%, 38.2%, 61.8%, and so on. These numbers then represent possible target levels for future prices.

If the Fibonacci Expansion Tool shows that the 1.618 expansion is at $25, then you can predict that if the price breaks above $20 and continues to rise, then $25 could be a potential target price level.

If the price starts to show a pullback after reaching this target, it may indicate that this extension is complete and a reversal or correction is occurring.

Fibo Calculator with the Thinkorswim Platform

As technology evolves, trading platforms provide traders with various tools to plot Fibonacci lines. The Fibo Calculator is a tool that automatically calculates Fibonacci retracements and extensions. The trader simply enters two key points and the tool generates all the relevant retracements and extensions.

Thinkorswim also provides traders with a powerful Fibonacci tool. With Thinkorswim, traders can easily plot Fibonacci retracement and extension levels and utilize other technical indicators to aid in their analysis. Here are the specific steps:

1. Drawing Fibonacci retracement

Select Tools: Open the Thinkorswim platform, enter the “Drawing” toolbar, and select the “Fibonacci retracement” tool.

Determine the starting point and end point: Click the starting point on the chart (usually a clear trough), and then drag it to the end point (usually the peak). The Fibonacci retracement levels are automatically displayed on the chart. The default levels are 23.6%, 38.2%, 50%, 61.8% and 78.6%.

Analyzing price zones: Retracement zones are usually potential support or resistance locations where the price is likely to bounce or retrace around these levels. Confirmation in combination with other indicators (e.g. RSI, MACD) improves signal accuracy.

• Drawing Fibonacci extensions

Select tool: In the “Draw” toolbar, select the “Fibonacci Expansion” tool.

Determine the three points: first select a starting point (trough), then select a middle point (crest), and then select an endpoint (retracement of the trough). Once these three points have been determined, the Fibonacci Expansion levels are automatically displayed.

Analyzing target prices: Common extension levels include 61.8%, 100%, 161.8%, etc. They are often used to predict potential target areas after a price breakout.

• Combine with other indicators.

With Thinkorswim's wide range of technical indicators (e.g. RSI, MACD, SMA, etc.), traders can confirm signals of Fibonacci retracements or extensions. For example, if the price meets support at 38.2% of the Fibonacci retracement and the RSI shows oversold, it could be a buy signal.

Fibonacci series in nature

The Fibonacci sequence doesn't just work in the financial markets, it also has a wide range of applications in nature. For example, the vast majority of flowers in the world have a specified number of petals, such as 5, 21, 34, and so on. The length and width of human DNA molecules, the layout of the scales of the pine cone, and the spiral structure of the conch all follow the laws of the Fibonacci sequence. Scientists and naturalists believe that the golden ratio of the Fibonacci sequence can optimize the structure of living organisms in nature and increase their competitiveness for survival.



Fibonacci series in cryptocurrencies

The application of the Fibonacci series is equally important in the cryptocurrency market. Due to the high volatility of the cryptocurrency market, the Fibonacci retracement and extension tool has become an important tool for traders to analyze price trends. Below are the general hands-on steps:

• Application of Fibonacci retracements

Choose a volatile segment: on the chart of Bitcoin or Ether, choose a distinct upward or downward swing. For example, Bitcoin rose from $20,000 to $40,000.

To draw a retracement line: Select the Fibonacci Retracement tool and click on the trough ($20,000) to the peak ($40,000) to draw it. Fibonacci retracement levels are automatically displayed on the chart, such as 23.6%, 38.2%, 50%, 61.8%, etc.

Finding Support Levels: If the price retraces to 38.2% (e.g. $30,000) and stops bouncing, this could be a support level, which in combination with other indicators confirms a buy signal.


• Application of Fibonacci Extension

Choose three points: Troughs, peaks, and retracements in the volatility that has occurred. For example, Bitcoin rose from $20,000 to $40,000 and retraced to $30,000.

Plotting Extensions: Use the Fibonacci Extensions tool to plot from troughs to peaks to retracements. Common extension levels include 61.8%, 100%, 161.8%, etc.

Setting Targets: If the price breaks above $40,000 and continues to rise, it may reach an extension level such as $50,000 (61.8% extension), which is a potential target level.

• Combining other indicators

Use indicators such as the RSI or MACD to confirm retracement and extension signals. For example, at the 38.2% retracement, an oversold RSI could be a buy signal.

Fibonacci Trading Book Recommendations

For investors who wish to gain a deeper understanding of the application of Fibonacci in trading, the following books are recommended

Fibonacci Trading: How to Master the Time and Price Advantage -- This book details how to utilize the Fibonacci series for technical analysis and is suitable for both beginners and experienced traders.

The Complete Guide to Fibonacci Trading -- This book provides an in-depth look at the use of Fibonacci retracements, extensions, and other related tools.

Fibonacci For Dummies -- Part of the Dummies series, this book explains the use of the Fibonacci tool in an easy-to-understand manner for entry-level traders.