Fibonacci, or Fibonacci numbers or Fibonacci sequence, also known as the golden ratio is the numbers that integrate the following sequence:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987...
The golden ratio, in this case, comes from the finding that the division of a Fibonacci sequence number by its predecessor is approximately 1.618. Fibonacci is found in many places in nature. It is present in us, in the relation of our fingers, hands, arms, feet, face and more. In addition to also be present in the petals growth of most flowers, shells, seahorse and more.
The Fibonacci sequence can also be seen in market movements. By doing a graphical analysis with Fibonacci it is possible to determine points of support and resistance. The importance and relevance of this tool are readily apparent, and it is so widely used by traders around the world that it ends up being one of the self-fulfilling prophecies.
How to plot the Fibonacci sequence?
To establish a Fibonacci, two points are necessary. The maximum and the minimum of prices. It is common for anyone who works with stocks to take the maximum and minimum daily of the paper in question and establish Fibonacci with this data. In more constant markets like the Forex, oil, gold and some indexes, we prefer to look at the chart maximum and minimum, regardless of time.
Fibonacci Retracement is a part of technical analysis to identify support and resistance levels (reversal levels).