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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.

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