Fibonacci in Trading: Why Traders Use It? 

Whether you are beginner or a pro trader, you probably came across Fibonacci Sequence. The name itself sound so intimidating, but really, you don’t need to be a mathematician to understand it. For the benefit of beginners, well try to cover it in a simple, easy-to-understand way. 

What is Fibonacci Sequence?

To simplify, it’s a sequence of numbers that starts with 0 and 1, and each subsequent number is the sum of the two preceding numbers. Here’s a sample: 0,1,1,2,3,5,8. So, 0 + 1 = 1, 1 + 1 = 2, 1 + 2 = 3, and so on. The pattern is infinite. Fibonacci sequence has various application from art, nature, architecture, and even in financial markets. In terms of trading, there’s Fibonacci retracement tool that is based on percentage, for example: 23.6%, 38.2%, 50%, 61.8%, and 100% - these are levels that traders like you and I watch out for and use in making our entries and exits. 

Now, the big question, how does it help you as a trader?

How Do You Apply The Sequence in Trading

It’s good to note that the use of Fibonacci sequence and its effectivity relies on the strategies and trading discipline you follow. But generally, Fibonacci is used in determining the retracement levels of your chosen trading instrument, which helps in determines the support and resistance areas in your chart. The idea is grounded in the market psychology that after a significant price movement into one direction, the market will pull back or retrace to Fibonacci levels before continuation happens to the original direction. If you are doing your research, the “Golden Ratio” or 61.8% is quite popular among traders. And why the Golden Ratio? It has something to do with herd behavior. It’s a concept that traders often set their their buy and sell orders around key price levels. In short… the herd mentality. If you go deeper, you’ll find it fascinating that the Golden Ratio is seen nature. Take Sunflowers for example, the seeds are arranged in a spiral motion following 1.618 ratio between the diameters. Da Vinci’s famous masterpiece, Mona Lisa, used the Golden Ratio. There are more samples out there.. But what we want to say is, it’s almost everywhere. 

Let’s say you are trading EUR/USD and the market is on a clear upswing. You pull up your Fibonacci retracement tool and plot the swing high and swing low. Your tool will show you the levels of where the price might retrace or fall before it continues on the upward trend. As a trader, Fibonacci retracement tool might help you stay objective in determining your stop-loss and take profit orders. A lot of traders around the world are using Fibonacci in plotting their entries and exits, so if you think of volume, when these traders betting on the same thing, it can have an impact on the market movement.

As a Reminder, There is No Fool-Proof Strategy

First thing first: there’s no so-called fool-proof strategy. Relying on a single tool or indicator is not a good thing. You need to determine your confluences, a set of rules before you buy or sell. You can mix several trading strategies and concepts as you see fit. And we might sound like a broken record for saying this, ALWAYS backtest your strategy. 

With Duplikium, you can easily copy your well-tested strategy. You have the option to enable stop loss (SL) and take profit (TP) directly for the slave account or disable them so that it mirrors the master account's position closings. You can also host pending orders for timed entries. Regardless of what strategy you are using, Duplikium is a versatile trade copier that gives you freedom to customize in just a few clicks.

Combine these standard features with our advanced tools to protect your account or fine-tune how orders are copied. If you're curious about a Swiss-quality trade copier, give Duplikium a try today!