What is Fibonacci analysis?

December 1, 2022

Fibonacci analysis is a method of technical analysis that is based on the use of the Fibonacci sequence and its derived ratios, such as the 0.382, 0.50, and 0.618 retracement levels. These ratios are commonly used by traders to identify potential support and resistance levels in the markets. For example, if a stock is in an uptrend and then pulls back, a trader may use Fibonacci analysis to identify potential support levels where the stock could bounce and continue its uptrend. Similarly, if a stock is in a downtrend and then rallies, a trader may use Fibonacci analysis to identify potential resistance levels where the stock could encounter selling pressure and resume its downtrend.

The effectiveness of Fibonacci analysis as a trading tool is a subject of debate among traders and investors. Some traders and investors believe that the Fibonacci ratios and levels are useful in identifying potential support and resistance levels in the markets, while others view them as arbitrary and not based on any fundamental or statistical evidence. Ultimately, the effectiveness of Fibonacci analysis will depend on the individual trader and their own trading style and methodology. It is important for traders to carefully evaluate any trading tool, including Fibonacci analysis, and determine whether it can be useful in their own trading strategies.

“The winners have attained a mindset – a unique set of attitudes – that allows them to remain disciplined, focused, and, above all, confident in spite of the adverse conditions. As a result, they are no longer susceptible to the common fears and trading errors that plague everyone else.” – Mark Douglas

This website is owned and operated by Investor Unity Pty Ltd (ABN: 90 160 624 331). Any advice included in this website or correspondence is general advice only and is based solely on consideration of the investment or trading merits of the financial products alone, without taking into account the investment objectives, financial situation or particular needs (i.e. financial circumstances) of any particular person. In addition to its internal services, Investor Unity is compensated by brokers and other third parties by way of referral/affiliate and/or general partnership arrangements, via its websites and other communications. Investor Unity is genuinely interested in your long-term trading & investment success. We advise you to take all necessary steps to ensure you have a good understanding of the products & services you’re considering investing in – particularly if they involve leverage. While Investor Unity takes every care to ensure that we only deal with the highest quality services, from throughout the industry, past performance is not a guarantee of future performance. Before making an investment or trading decision based on the general advice, the recipient should carefully consider the appropriateness of the advice in light their financial circumstances and should carefully review the PDS of the relevant financial product as provided by your investment broker. Past results are not a guarantee of future performance. Please contact us, to discuss any questions or concerns you may have- we are here to help.