If you still haven’t heard of Mr. Fibonacci, you are probably lagging far behind the herd. Go get yourself a hot dose of Fibonacci’s green liquid healer. Then may be, you could find yourself floating around on a magic carpet with a glittering sword hunting for your next move in your charts.

However, let’s just remind ourselves that Mr. Leonard Fibonacci discovered ratios created by a series of numbers, that describes the natural proportions of everything that’s natural. He did not discover the magic portion for extraordinary forex profits. If you are still dreaming, it’s time to wake up…

The number series goes as: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55 …. You get it, right? The series starts from 1 and the continuity rule is that the current value added to the previous value generates the following value of the sequence. What we are interested in are the ratios these numbers create between them. After the first few numbers in the sequence, the ratio between two adjacent numbers is 0.618, and the ratio between alternate numbers are rounded off to 0.382.

Although we need not know how exactly to arrive on each of the ratios, we need to know at least the all important ratios themselves. They are as follows..

Retracement Levels
0.236, 0.382, 0.500, 0.618, 0.764

Extension Levels
0, 0.382, 0.618, 1.000, 1.382, 1.618

Basically, in the traders world, the retracement levels means support and resistance levels, and the extension levels mean profit taking levels. These levels created upon a trending chart should help you with stop loss or take profit limits accordingly.

Most brokers provide charting tools and software that include Fibonacci tools to help you with trading. These techniques require a lot of practice and practice makes it perfect. This doesn’t by any means imply that you will end up in profit, anytime you enter a trade using Fibonacci levels as the base. But it is worth to know that, because of so many traders rely and use Fibonacci levels heavily in their trading, you can anticipate certain resistance and support at Fibonacci levels in real time charts.

All analysis tools work best when they are not heavily relied upon as the sole, decisive system tool. If you are a technical trader and are allergic to news trading, then you are better off combining few forex signals into your system. Be careful not to overcook your cake. Simple systems work best, regardless of the fact you use Fibonacci retracements and extensions in your trading.