Fibonacci Retracement Definition & how to use

By An Khmurenko on in Learn to trade

The Fibonacci retracement sequence was well known in ancient India, where versification was used. XII century Leonardo of Pisa, better known by the pseudonym Fibonacci. Fibonacci retracement, in addition to the other three mathematical problems, studied and described this sequence in detail in Liber Abaci (The Book of Abacus or The Book of Abacus). 

There are many wonderful mathematical symbols in this series, among them 1,618. This number has been known since ancient times and was first found in the Beginnings in Euclid (about 300 years BC), where the order is applied to build a regular pentagon. You can read more about this in the article How to use Fibonacci to set Stop Loose.

Fibonacci Retracement Definition & how to use

How to use Fibonacci retracement

The golden ratio is considered the most harmonious proportion of the relationship of the whole to the part. The number 1.618 is very often found in natural forms; nothing in common is directly established. This proportion can be seen in the shells of the streets, the distance between the leaves on the branch, the shape of a spiral galaxy, and even in the average access of parts of the human body.

The Belarusian scientist Eduard Soroko, who studied the shapes of the golden sections in nature, noted that all growing and rapidly occupying their place in space are endowed with the proportions of the golden section. This is spiraling.

In musical works, poems, and artistic works, there are proportions of 1.618. Scientists of the XIX century recognized the golden ratio as the standard of harmony of proportions in nature.

The development of this idea

The idea of finding the golden ratio in the chart of stock quotes belonged to an American engineer and manager, Ralph Helson Elliott, who became interested in the analysis of values after a serious illness in the early 1930s. Elliott studied annual, 75-year market behavior stories. In the process of research, he noticed that the movement of indices is subject to certain rhythms – waves, in the proportions of which the same 1,618 are traced. The law of nature is the Secret of the Universe), in which he included all his developments, theories and excitements, and Fibonacci retracement relationships.

After many trading companies and researchers searched for various options for the application of Fibonacci retracement in exchange trading, the development of computer technology is carried out in accordance with analytical requirements. Modern traders actively use the Fibonacci retracement tool based on the specified mathematical.

Fibonacci Retracement Definition & how to use

Fibonacci retracement levels in stock trading

Quik offers the user four Fibonacci retracement tool. These are levels, fans, arcs, and Fibonacci time zones. Let’s start with the most popular levels.

One of the oldest and most reliable tools is the widespread support and resistance levels. Market participants need price benchmarks to understand whether it is profitable to buy now. However, it is not always possible to determine which level will work. How to solve this problem?


Determination of correction levels: how to draw Fibonacci retracement

According to the rules, the Fibonacci retracement levels tool stretches from beginning to end, there will be no difference in Quik). Thus, the results obtained may be possible for correction. As control and trend transactions. Also, the levels become more “dirty” when the correction phase is delayed. However, even in this case, the Fibonacci retracement levels can remain relevant and can work, including in the mirror.