One of the most commonly used and also highly misunderstood technical indicators is the Fibonacci Retracement. This article will discuss, "What is Fibonacci Retracement? Advantages and Disadvantages of Using Fibonacci Retracement". Let's get started.
What is Fibonacci Retracement?
Fibonacci retracement (or Fib retracement) is a tool used by traders and technical analysts in an effort to forecast key areas on a chart. To do this, they convert Fibonacci ratios into percentages. The Fib retracement tool is derived from a string of numbers identified by mathematician Leonardo Fibonacci in the 13th century. This string is called the Fibonacci sequence. In this series of numbers, there are certain mathematical relationships that produce ratios, which are then displayed to a chart. These ratios are:
- 0%
- 23.6%
- 38.2%
- 61.8%
- 78.6%
- 100%
While technically not a Fibonacci ratio, some traders also consider the 50% level to have some significance, as it represents the midpoint of the price range. Fibonacci ratios outside of the 0-100% range may also be used, such as 161.8%, 261.8%, or 423.6%.
Advantage of using Fibonacci Retracement
Fibonacci Retracement is a technical indicator that if used properly can definitely tell a trader when to enter and exit a market with very little chance of losing. Though many find it confusing, it can be very profitable if used correctly in the right scenario.
Disadvantages of using Fibonacci Retracement
Though very reliable, it takes some time to understand this indicator. If not well understood, it can be very risky to use it and traders are not advised to use it unless they know exactly what they are doing.
What is Fibonacci Retracement? Advantages and Disadvantages of Using Fibonacci Retracement - Hopefully, this article can help you to get some knowledge.
