Fibonacci is one of the greatest mathematicians of all time and is known for discovering a series of numbers that occur in a special sequence. Fibonacci numbers occur in a sequence where each term, except for the first two terms, is the sum of the two previous terms. Fibonacci indicators are used in technical analysis of stocks and technical analysts use them to predict price targets and support and resistance targets.

Stocks have a greater tendency to retrace, instead of moving in a straight direction. Keeping this in mind, traders use Fibonacci indicators as reference points in order to predict retracement vs. reversal. Fortunately, there is trading software available that automatically calculates and draws these indicators using Fibonacci numbers. All that the trader must do is to learn how to use them.

There are four popular Fibonacci indicators and the interpretation of the indicators involves the anticipation of changes in trends as prices near the lines created by the indicators. These four indicators include the Fibonacci arc, the Fibonacci fan, the Fibonacci retracement, and the Fibonacci Extension. These four indicators are used to forecast the support and resistance levels using Fibonacci numbers. There are many additional indicators such as the Fibonacci cluster, the Fibonacci time zones, and the Fibonacci channels.

Trade decisions using Fibonacci retracement must include entry (risk)/exit (reward) analysis with respect to key pivot points. Focus on getting into a market at major ratios while standing aside as price lingers between key zones. Most times, the smartest execution will counter the most immediate short-term trend.

Fibonacci numbers are also used in conjunction with the Eliott Wave Theory. The Eliott Wave theory states that the stock market moves in repetitive cycles, or waves, which enable investors to forecast trends in the financial markets. We will discuss the Eliott Wave Theory more in future articles.

Please also read about Japanese Candlesticks which is another trading strategy used by some of the world’s most successful traders. It is the fastest way for new investors to quickly and accurately read stock charts. Once you are comfortable with the major candlestick signals, expand your expertise by learning the secondary Candlestick Patterns . Combine these with your favorite technical analysis indicators, such as the moving average convergence divergence indicator , and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or exchange traded funds .

Please continue your technical analysis education and read about Elliot Wave Theory.