Fibonacci Retracements: Sequence, Golden Ratio and Trading Levels

Fibonacci was the nickname of the Italian mathematician Leonardo Pisano. He was born in Pisa in 1170. In his youth, he studied mathematics in the port of Bugia (now located in Algeria). Over the course of his many travels, he learned the Hindu-Arabic numeral system. In the Fibonacci sequence, after 0 and 1, each number is the sum of the two before it. When you use Fibonacci retracements in your technical analysis, the numbers used in Fibonacci retracements aren’t the numbers of the Fibonacci sequence itself. Instead, you use the mathematical relationships between the numbers in the sequence. Like most of the technical indicators I use, Fibonacci is available on TradingView.

You draw Fibonacci retracement levels by identifying the highest and lowest points of a move. This creates a grid that marks the Fibonacci levels horizontally. These horizontal lines are used to identify reversal and trend zones. By cross-referencing them with our support and resistance, you can find points of confluence and, therefore, meaningful and reliable signals! Fibo is far from a tool to overlook… When I take a look at my trading journal, I’d say more than half of my technical analyses incorporate the Fibonacci sequence. It’s a perfect complement to the Price Action methods.

Fibonacci: The Sequence and the Golden Ratio

The golden ratio (also called the golden section, golden proportion, or divine proportion) is a ratio, originally defined in geometry as the unique ratio a/b between two lengths a and b such that the ratio of the sum a + b of the two lengths to the larger one (a) equals the ratio of the larger one (a) to the smaller one (b).

This irrational number is the unique positive solution to the equation φ ² = φ + 1. It equals: 1.618