In the beginning, every trader takes a
journey to find a trading plan that works for his/her personality.
For me, Fibonacci patterns fit nicely. Everyone is different; the way
I trade Fibonacci patterns is not necessarily the same as any other
trader who says that they trade Fibonacci.
There are plenty of web references that
explain the Fibonacci sequence derivation so I will not do that here.
What I will do is explain the ratios that I use. Let's use a portion
of the sequence, specifically the numbers: 89, 144, 233, 377, 610,
987, 1597, and 2584. Note, any eight consecutive numbers in the
Fibonacci sequence will generate the same ratios.
Using 610 as the numerator, and each of
these numbers as the denominator, these divisions generate the pure
Fibonacci ratios of:
- 23.6% (610/2584),
- 38.2% (610/1597),
- 61.8% (610/987),
- 100% (610/610),
- 161.8% (610/377),
- 261.8% (610/233),
- 423.6% (610/144),
- 685.4% (610/89).
Next take 61.8% and 161.8% find the
square root of them and the square root of those which generates
derived Fibonacci ratios of:
- 78.6%,
- 88.7%,
- 127.2%,
- 112.8%.
I also use 141.4% and 70.7% which are
derived from the square root of two and its reciprocal.
