What is Fibonacci Trading?
It is every trader’s dream to always have a profitable trade. While every trader certainly has different motives behind trading, it eventually gets down to profits. It is necessary for traders to analyze and predict the trends by using different indicators and then make trading decisions.

One such important technical instrument is Fibonacci Trading. It was identified by an Italian mathematician Leonardo Fibonacci in the 13th century. In Fibonacci trading, there are two types of levels – Fibonacci Retracement and Fibonacci Extension levels. These levels are obtained from mathematical relationships between numbers in a particular sequence.

Fibonacci Retracement

The Fibonacci Retracement levels denote the support and resistance areas and can be identified by taking the two maximum points in the chart and dividing them by the Fibonacci ratios of 38.2% (0.382), 50% (0.500) and 61.8% (0.618). The support and resistance areas can be identified when the two extreme points are connected by horizontal lines.

Fibonacci Extension

The Fibonacci Extension levels denote the profit-making areas in the chart. Traders use these levels to identify when a new asset will go short or long. The important extension levels are 161.8% (1.618), 261.8% (2.618) and 423.6% (4.236). Along with candlestick charts, traders can also use Fibonacci Extension levels and take trading decisions.

Fibonacci levels are quite simple to understand and require a bit of patience and practice from your side. However, these levels cannot be regarded as the sole deciding factor when it comes to making trading decisions.

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