Options Made Easy: Your Guide to Profitable Trading, Second Edition

Fibonacci Retracements

The Fibonacci numbers are consistently powerful in various market conditions. The theory of the Fibonacci number sequence revolves around numbers that repeat themselves in nature. This sequence was used originally to explain the breeding cycles of rabbits. However, the numbers have a variety of other unlikely uses, for instance in interior design and trading.

Here’s how the numbers work:

Each number in the sequence is the sum of the preceding two numbers. Beginning with 0, the sequence runs as follows:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89...etc.

Eventually and with the larger numbers, one will divide into its successor 1.618 times. 1.618 is known as the “Golden Ratio” and, together with its reciprocal, 0.618, these ...