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There was a moment of history, precisely during the Late Middle Ages, where the sciences underwent a period of decline. We are at the...

There was a moment of history, precisely during the Late Middle Ages, where the sciences underwent a period of decline.

We are at the end of 1100 and the beginning of 1200 when a group of mathematicians contributed to the rebirth of the sciences. Among them was Leonardo Pisano, known as Fibonacci.

Fibonacci was the first Christian algebraist, the most scientific genius of the XIII century in Italy. The fame of Fibonacci was so much that King Federico II invited him to court.

During his stay at the royal court, there was a tournament where he challenged the best mathematicians armed with paper, pen and abacus showing definitively how the calculation techniques according to the method learned from the Arabs could perform complex calculations faster than with any abacus.

Fibonacci solved the problem with such a speed as to make even think that the race was rigged.

We told this story because the figure of Leonardo Fibonacci is critical to understand some of the movements of the Market.

Fibonacci mathematical theories have become very important for traders, because they allow them to anticipate market trends.

Based on his studies it has been determined that after a significant move in currency prices (when the rate begins to retrace); it tends to find support or resistance at 38.2%, 50% and 61.8% of the larger move.

In Fibonacci theory, these three percentages have a very popular mathematical relationship as they continually appear in nature.

38.2%, 50% and 61.8% levels represent areas where there is a high likelihood that the retracement will stop and the larger move will resume.

To calculate support and resistance areas based on major and custom Fibonacci values has been created the Fibonacci Calculator.  Knowing how to use Fibonacci retracements and extensions in the trade can bring your trading to a new successful level.

The Fibonacci Calculator can be downloaded from the internet and it helps to find resistance and extension levels for the market prices. Like this it would be possible to anticipate market prices moves and plan future trades.

Before explaining how to use this tool, it is important to define some terms:

  • Entry level: the price you will try to enter a trade.
  • Target: your “goal price”.
  • Stops: the price at which you will exit a trade.
  • Resistance: the price level above which it is supposedly difficult for a market/asset to rise. The price at which technical analysts note selling of a commodity or security.
  • Support: the price level below which it is supposedly difficult for a market/asset to fall. That is, the price level at which a security tends to stop falling because there is more demand than supply.
  • Fibonacci Numbers: a series of technical analysis studies where charts and numeric relationships are used to pinpoint high and low price levels for a security. There studies are about: arcs, fans, retracements, and time zones.

To use Fibonacci Calculator you need to enter the high and low price for the stock, future, currency or commodity from the previous day (or period) into the input boxes. The tool will calculate the resistance and support levels from the high and low price you entered.

Based on this information you can decide how to trade and plan what to do in future. But, it is important to use charts and Fibonacci together to allow you to better identify support and resistance levels.

Obviously, the Fibonacci Calculator is not designed to be used as the sole means for obtaining these numbers. This tool is great, but if you rely on its numbers blindly, then you are going to be disappointed.

 

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