The Fibonacci sequence is used by many foreign exchange traders in their trading strategies. The sequence of numbers, which was discovered by the mathematician Fibonacci has proven to be quite uncanny in determining market movements. Trading systems that use Fibonacci numbers don’t really use the numbers but rather the ratios associated with the numbers. Each system can concentrate on just particular ratios in coordination with other minor indicators to determine the correct entry and exit levels when trading.
One of the Fibonacci ratios that are used most extensively is 0.382. The reason for this is that it is a ratio that is easily seen in various charts. The 0.382 ratio is reflected in both the resistance and support levels of any chart.
So how do you find the 0.382 ratio level? The first step is to measure how much is the drop or rise over the time of interest. Upon getting the value, multiply it by 0.382. Depending on the movement you are looking at – which is either rise or drop in the price of the currency pair you are trading – you add the last value that you have arrived at to the total drop or, alternatively, you subtract the value from the total rise.
Following this process will result in the 0.382 Fibonacci ratio level – which is applied to either the rise or drop in the chart you are studying. Upon getting that value you can start formulating a trading strategy that will take into account the ratio so it will result in higher chances of getting profitable trades. Based on the 0.382 Fibonacci ratio level that is calculated for a rise in value, the level will be for a good support. For ratio levels calculated for a drop in value, the level will be for resistance.
Knowing these levels before you enter the market and using complementary secondary indicators will give you a distinct advantage over other traders. This is an advantage that can spell profitability for you.