Understanding the Basics of Fibonacci Ratios

By | November 5, 2013

Tuesday, November 5th, 2013 by Tim Lanoue

The implementation of Fibonacci ratios is more of an application than an indicator.  Too many novice traders who are unfamiliar with binary options the term Fibonacci may be one that sticks out, may cause a sense of doubt because the way the word sounds.  I know when I first started out Fibonacci was one of those words for me that I just stayed away from because I wanted nothing to do with it.  However looking back at it now I realize how foolish it was for me to do so because the Fibonacci indicator is a great indicator when trading online.

Perhaps one of the most remarkable facts about this indicator is that it can be traced back to the 13th century when it was first used by its creator Leonardo Fibonacci.  Leonardo Fibonacci was a mathematician that was very interested in technical analysis and believed that the market acted much like nature, meaning there were forces that control the market just like nature. More importantly, today online traders use this indicator with the main purpose to predict future support and resistance levels of an asset.  The ability to accurately predict these levels with consistency and precision is what every trader should strive for because knowing this pertinent information ultimately leads to a higher success rate.

Moving forward, in the picture below you can see an example of what an asset would look like with Fibonacci ratios.  One important factor to keep in mind is that when using Fibonacci ratios you can use any ratio that you please so you do not have to use the ones in the picture below but those ratios are the ones that I prefer to use.  The purpose of these ratios is to help a trader predict future support and resistance levels that are likely to occur later in the assets trend.  Perhaps one of most interesting things about Fib ratios though is that no matter where you set your ratios you will always see future bounce plays happen near these ratio lines.

To conclude, understanding Fibonacci ratios is no hard task all you need to really know about them is that they help predict the future support and resistance levels of assets.  No one is still unsure why these ratios behave the way that they do but when used in a trading pattern it can become extremely effective.

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