Fibonacci indicator in Technical analysis – Powerful and safety

Fibonacci indicator retracement, fan, arcs, time zones, extension definition and how to use
Fibonacci indicator retracement, fan, arcs, time zones, extension definition and how to use

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Introducing the Fibonacci indicator

The Fibonacci indicator is widely used in technical analysis derived from the mathematical theory of Leonardo Bonacci living in the 12th century. He is also known as Fibonacci and many other names.

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According to his theory, Fibonacci is a series of numbers starting from 0 and 1, each next number equal with the sum of the two numbers before it. For example: 0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987 …

From those numbers above, people analyzed it by dividing each other in random ways and got some repeat ratios more than normal. These are the ratios: 1,618% (the golden ratio), 23.6%, 38.2%, 61.8%. Incidentally, these ratios are very common in nature.

Fibonacci shapes

There are 2 most popular types of Fibonacci:

Fibonacci retracement

A horizontal range of thresholds representing the resistance and support level with the golden ratio. You can set up min and max in any position. Then, work with supports, resistances created by Fibonacci indicator as work with normal support, resistance.

Fibonacci retracement indicator definition
Fibonacci retracement indicator definition

Fibonacci Fan

This indicator contains diagonal lines, you can set it following the direction of the graph to shape the Fibonacci graph in the desired direction. The alignment can help you see clearly the support and resistance levels along the slope. Now just need to catch the signal according to these cross thresholds.

Fibonacci Fan indicator shapes definition
Fibonacci Fan indicator shapes definition

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There are also Fibonacci extensions, Fibonacci time zones, Fibonacci golden spiral.

Each level from 0 to 1 has different specifications. A trader needs to determine whether these benchmarks are Critical or Support points. The analysis of historical data confirms this relative division.

1 (or 100%)

Support Level

0.7639 (or 76.39%)

Support level

0.618 (or 61.8%)

Support level

0.5 (or 50%)

Critical level

0.382 (or 38.2%)

Critical level

0.236 (or 23.6%)

Critical level

0.16 (or 16%)

Support level

0 (0%)

The start point of the calculation

The effect of the Fibonacci indicator

Fibonacci retracement is most commonly used. Because of their simplicity in helping identify support, resistance, stop-loss, and take-profit points.

Even so, there is no guarantee that prices will react as expected, so people often combine Fibonacci with other indicators. Other negative comments of Fibonacci are that there are too many resistance lines. Prices often fluctuate between these lines, these things are confusing traders in their calculations when calculating the effective threshold.

How to use the Fibonacci indicator

With Fibonacci, you can calculate the threshold where the reversion happens. You just need to select any range and apply the Fibonacci indicator. Capturing the trend of prices quite well through the reversal signals.

Fibonacci retracement signal

You range the two bottom and top points to create important thresholds 0.1618, 0.236, 0.382, 0.618, 1. In any situation, the thresholds of graph match with at least 3 reversal signals in the past. In the future, the positions at important thresholds will reverse as shown in the picture.

Fibonacci retracement indicator entry point
Fibonacci retracement indicator entry point

Fibonacci fan indicator

The same is true for the Fibonacci Fan indicator. You should set up to follow the line you see a strong bullish slope occurring about three times.

Fibonacci Fan has more differences. You can adjust the direction of the price zone. Selecting areas to choose resistance, support in a specific direction. Every time the price reaches the resistance levels, gold supports such as 0.1618, 0.618, and 0.238 is a good signal for a reversal.

Fibonacci Fan indicator signals
Fibonacci Fan indicator signals

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Fibonacci indicator in Technical analysis – Powerful and safety
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