A Fibonacci calculator is said to be a forex widget or tool that is used to create opportunities to maximize profit by getting a forex trader to know where to set a profit target in charts. A Fibonacci calculator has both the retracement and extension tools. The calculator generates level of retracement and extension for its user. The use of both the retracement and extension tool depends on a trader’s ability to trace the tools on the chart which is by identifying the high and low swings of prices.

FIBONACCI RETRACEMENT

This is said to be a very important tool used by technical forex traders. Technically,Fibonacci retracement is formed by taking a major peak and trough on a currency chart and then dividing the vertical distance of the currency chart by the most important Fibonacci ratios which are 23.6%, 38.2%, 50%, 61.8% and 100%. Once these values of a retracement are identified, possible support and resistance level are also identified by horizontal lines.

FIBONACCI EXTENSION

The extension tool is mainly for tracking currency moments in the forex market and this is illustrated using a Fibonacci chart. Fibonacci extension identifies the extent to which the currency pair will make the renewed move after a retracement.

FIBONACCI SEQUENCE

A Fibonacci sequence is said to be a series of organized numeric where a number is derived by the addition of two numbers before it. It is a sequence of integers in which the first and second number are both equal to one and each preceding number is the sum of the two before it. The Fibonacci sequence starts with a 0 and 1 which goes like this; 0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 etc.

Fibonacci sequence was first introduced in the year 1202 by Fibonacci who is also called Leonardo of Pisa who was a son of Pisan merchant. Leonardo of Pisa was known to be a wide traveler and an extensive trader. He wrote many books on geometry, irrational numbers and commercial arithmetic. He also developed the concept of Zero with other known mathematicians.

The theory ofFibonacci sequence was developed when he pondered over a mathematical problem on rabbit breeding. He began with a male and female rabbit, their sexual maturity after a month, its gestation period which was a month, the birth of new male and female rabbits which was very month and the fact that they do not die.

APPLICATION OF FIBONACCI CALCULATOR IN FOREX TRADING

Forex traders make use of the Fibonacci calculator as a retracement tool which aids in the determination of small price corrections and in the identification of support areas and resistance. These retracements are ratios based on the sequence of Fibonacci which is used to guess the extent of corrections in a normal forex market wave. It is also used to determine forex market pullbacks or continuation patterns.

A Fibonacci calculator can also be employed in breakout strategies by forex traders to locate exit and entry trade positions if a retracement is proven to be an effective support or resistance level within a security’s historical price pattern.

In conclusion, the probability of forex trading success increases with the use of a Fibonacci Calculator and other support and resistance level, trend lines and patterns on candle sticks for the identification of entry and stop loss points. However, this tool has a drawback in that it cannot be used in the prediction of a retracements end.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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