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# The magic and mystery of the Fibonacci sequence in trading With idolmeta.net learn about fibonacci and how to use it in trading effectively

## Fibonacci Sequence

In simple terms, the Fibonacci sequence has the following form:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…

The rule of this sequence of numbers is simply that the next number is equal to the sum of the two preceding numbers.

If you take any number (except 0) and divide it by the next number in the Fibonacci sequence, you will get ~0.618, and the later this number will be more accurate.

And this is the magic behind the Fibonacci sequence: the golden ratio 𝝋 = 0.618.

Another interesting thing: 1 / 𝝋 = 1 / 0.618 = 1.618, and 1 / 1.618 = 0.618 so you can call 0.618 or 1.618 the golden ratio. Wandering a little with this golden ratio, you can pay attention to everything that exists around you: if in any thing or thing there is a golden ratio, we will feel it. looks “perfectly” beautiful, more than anything else.

Photography tip: the rule of thirds with the golden ratio. Architecture: And in many, many other things, for example: in Trading.

## Fibonacci Retracement Meaning of Fibo retracement: measure the correction/retracement of a wave, to see how far the price line can correct/retrace.

There are many Fibo retracement levels, of which 3 need to be noticed the most: 0.382, 0.5 and 0.618.

Example in an uptrend (similar downtrend):

• If the wave returns in the area from 0.618 – 0.382, then it is likely that the price will continue its upward momentum, possibly entering a long order here, sl below the 0.618 zone.
• If the wave pulls back past 0.618, the uptrend may reverse. Do not continue to enter the order but observe more.
• Fibo 0.5 is a special landmark, there are many cases where the price regressed here and bounced up strongly.

How to use: measure 2 points from the base of wave (1) to the beginning of wave (2) (applicable to both bullish and bearish wave cases). Example BTC chart H4 frame: price follows an upward wave from the base of wave (1) to the top of wave (2).

When we see that (2) could be the top of this wave, we use Fibo retracement to measure the retracement of the correction.

This case is explained as follows:

• Price increases one circuit from (1) to (2) corresponding to 100% of the wave strength.
• After that, the price returned to the area of 0.618 and bounced up, corresponding to 61.8% of this bullish wave.
This proves that the sellers are quite strong, because if the buyers are still aggressive, it is likely that the sellers can only push to the Fibo zone of 0.382 or 0.5.
• The price then bounced up but not really strongly.

Somehow, the price fell to the right Fibo area 0.618 reached the consensus of the market in the market, and bounced back after that.

This miraculous coincidence has given the Fibonacci tool another name: a gauge of market sentiment, and it is the only tool that can measure market sentiment.

## Fibonacci Extension

The second most commonly used Fibonacci tool is the Extended Fibo. The meaning of the extended Fibo: when the secondary trend (correction wave) breaks the old top of the primary trend, confirming the continuation of the first level trend according to Dow theory, the extended Fibo is used to estimate the milestone. target of this upcoming wave (up or down can be used).

Fibo extensions that need the most attention: 1.0, 1.618 and 2.618. Those will probably be the targets of this bullish wave.

How to use: measure 3 points from the base of wave (1) to the beginning of wave (2), and finally the end of the retracement wave (3) (applicable to both bullish and bearish wave cases).

For example, VNINDEX chart D1 frame: the price after retracing to point (3), bounced and broke the peak (2).

Then, we can use Fibo extension to estimate the target of this bullish wave. In this example, the price rose through the 1.0 Fibo area, reached the 1.618 Fibo area and then started a downward correction.

## Some note

In addition to Fibonacci retracement and Fibonacci extension, there are still many other complex ways of using Fibonacci: Fibonacci fan, ring, arc, wedge, Fibonacci Time Zone… If you are interested, you can learn more. based on these keywords.

The common feature of all types of Fibo: they act as resistance (resistance – support), and do not forget this sentence: “Resistance is created to be broken”.

Therefore, there is no surefire formula for where the price will reverse. It’s all probabilities.

Therefore, the way to trade with Fibo is to closely observe the price reaction at the important Fibo area, combined with other technical technical knowledge such as reversal candlesticks, resistance – support, moving averages, trendlines… to increase the probability of winning when entering the order.

For extended Fibonacci, it is possible to use a partial profit taking strategy when the price reaches important Fibo milestones, ensuring that you will not regret when you can’t eat all the waves or fall into a situation where you are turning from taking profits to making losses.

## Epilogue

Fibonaci is a very powerful tool, but don’t be too confident in your analysis and then go all in and hold a grudge. Market always waits for a trader’s subjective moment and wipes out their account.

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