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What Is Fibonacci Retracement?


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Around A.D. 1175, Leonardo of Pisa was born in Pisa, Italy. Now better known as Fibonacci, he is now known as the greatest mathematician in Europe during the middle ages. He brought the Arabic-Hindu numbering system to Europe and developed the decimal system, both of which became the foundation of the mathematics that are used today. To the financial trader, the Fibonacci retracement method based on the contributions of this great mathematician are significant.

The most important numbers found in trading are percentages: 38.2%, 50%, and 61.8%. These percentages are considered to be trend retracement points, and are what the Fibonacci retracement method focuses on. If the retracement goes to the 61.8% mark, there is a new trend starting. If the retracement goes to the 38.2% mark, then there has been a failed reversal and the current trend will likely continue. If the retracement goes to the 50% mark, there are other signals that have to come into play and some different strategies are used.

The Fibonacci retracement numbers have become more popular recently as traders have begun to see the value in utilizing these numbers that consistently predict new trends. If you take the time to study the Fibonacci retracements and check them against the current numbers and then follow them, you will see that most of the predictions are accurate, sometimes right on the money.

As with any of the systems out there, Fibonacci retracement numbers should not be the only source you consult when making trading and investment decisions because it’s never a good idea to rely solely on one system, even if the system is a good one. However, it can be an extremely useful tool to combine along with other indicators so help strengthen your trading system. Every trader, from individuals to large investment firms, can benefit from using Fibonacci retracement as a part of their financial trading.

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