Review: HOW TO MAXIMIZE PROFIT USING THE FIBONACCI RETRACEMENT ANALYSIS TOOL
Rating: 4 out of 5
Date: 05 30, 2014
Fibonacci Retracement is a term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going higher).  Essentially it is the potential retracement of a financial asset's original move in price.  It is a very popular tool among technical traders and is based on the key numbers identified by mathematician Leonardo Fibonacci in the thirteenth century.  The Fibonacci sequence of infinite numbers is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.  Numbers in this sequence are the sum of the two previous numbers.  A significant trait of this series is that each number is approximately 1.618 times greater than the preceding number. This relationship between these numbers is the foundation of the common ratios used in retracement studies.  The key Fibonacci ratios are 23.6%, 38.2%, 50%, 61.8% and 100%.  The ratio of 61.8% - also referred to as "the golden ratio" - is found by dividing one number in the series by the number that follows it.  For example: 8/13 = 0.6153, and 55/89 = 0.6179.  The 38.2% ratio is found by dividing one number in the series by the number that is found two places to the right.  For example: 55/144 = 0.3819.  The 23.6% ratio is found by dividing one number in the series by the number that is three places to the right.  For example: 8/34 = 0.2352.  These ratios seem to play an important role in the stock market and can be used to determine critical points that cause an asset's price to reverse. The direction of the prior trend is likely to continue once the price of the asset has retraced to one of the ratios listed above.  Daniels does a good job illustrating how this technical analysis tool works, a good read for newbies.