What is Fibonacci retracements ?
It indicate critical levels of support and resistance. Fibonacci levels are frequently estimated when market has made a major move, either up or down, and appears to have flattened out at a specific price level.
Traders draw horizontal lines across a chart at the critical Fibonacci retracement levels of 38.2 percent, 50 percent, and 61.8 percent to identify areas where the market may retrace before continuing the larger trend established by the initial large price gain.
The 50% level is not part of the number sequence, but it is included because of widespread trading experience of a market retracing nearly half of a strong move before restarting and continuing its trend.
Fibonacci claim that since so much of nature and cosmos is built up of ratios, then surely the same applies to markets. This strategy may be used by analysts to learn how to trade it. Assume a market has risen like previous markets, is not moving in a straight line and is beginning to fall. Traders will use ratios to predict where the market will stop falling and resume its prior upward trend.
Fibonacci retracement levels often and accurately represent retracement reversal locations. Retracement levels are a useful technique that may be used on any timescale, including day trading and long-term investment. Fibonacci numbers are important in the Elliott Wave theory, which is a technical analysis method used to detect market cycles. The method may be used on a variety of asset types, including foreign exchange, equities, commodities, and indices.
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