Leonardo Pisano (nickname Fibonacci) was a mathematician, born in 1170, in Pisa (now Italy). His father was Guilielmo, of the Bonacci family. His father was a diplomat, as a result Fibonacci was educated in North Africa, where he learned “accounting” and “mathematics”.
Fibonacci also contributed to the science of numbers, and introduced the “Fibonacci sequence”
Fibonacci sequence is a series of numbers. Every number is being produced by adding the last Fibonacci number to the previous. The first numbers of Fibonacci sequence are 1,2,3,5,8,13,21,34,55,….etc
After the first few numbers in the sequence, if you measure the ratio of any number to that of the next higher number you get .618. For example, 34 divided by 55 equals 0.618.
If you measure the ratio between alternate numbers you get .382. For example, 34 divided by 89 = 0.382 and that’s as far as into the explanation as we’ll go.
Traders use the Fibonacci extension levels as “profit taking levels“. Again, since so many traders are watching these levels and placing buy and sell orders to take profits, this tool usually works due self-fulfilling expectations.
In order to apply Fibonacci levels to your charts, you’ll need to identify Swing High and Swing Low points.
A Swing High is a candlestick with at least two lower highs on both the left and right of itself. A Swing Low is a candlestick with at least two higher lows on both the left and right of itself.
