Fibonacci Retracements

What are they?

Fibonacci retracements are a feature of technical analysis used by stock brokers like Accendo Markets to measure and to predict the movements and trends of stock values. They use Fibonacci sequences to measure the rise and fall of values on a graph, and identify the differences in values at certain key points. Fibonacci retracements are a popular and widely-used form of value measurement, and can even be used to predict future trends.

What are Fibonacci sequences?

Fibonacci sequences are named after the medieval Italian mathematician known by the same name, and are series of numbers where each number is the sum of the two preceding figures. The sequence always starts either 0, 1, 1 or simply 1, 1, after which the next figure would of course be 2, then 3, then 5 and so on. Fibonacci sequences appear everywhere there are patterns, from computing to nature. They are closely related to the golden ratio, so sometimes Fibonacci retracements are referred to as working with the golden ratio. In finance, they are useful because they provide reliable points on a chart at which a technical analyst can plot.

How are they used and why?

A technical analyst will use Fibonacci retracements to analyse a stock’s movements in terms of value over a given period of time. They can mark the highest and lowest point of value on a chart and use this as their 0% and 100% points. They then mark horizontal lines across the chart at the following points, which are determined by Fibonacci sequences: 23.6%, 38.2%, 50%, 61.8% and 100%. These markers can then be used to predict where the market values will move to next, and therefore allow analysts like those at Accendo Markets to assist their clients in deciding where to place support and resistance in order to help lessen the effect of losses. The support and resistance points are usually placed on or very near the markers. Predicting can be done very simply by using a compass to draw arcs that pass through the markers, giving the analyst an idea where the next highs and lows will be. These are known as Fibonacci arcs. As well as being used to highlight where to place stop losses, Fibonacci retracements can be very useful in trading itself, for example deciding when and where to open a position on a particular market.

Accendo Markets

Fibonacci retracements are put to use by Accendo Markets as part of the research they do. This form of technical analysis allows the brokers at Accendo Markets to understand different areas of trading on their own terms, thereby ensuring the information they give to their clients will be well-informed and reliable.  Despite this, markets can of course move in unexpected ways, and no matter how careful the trader or knowledgeable the stock broker, losses are always a possibility.

Leveraged products involve a high level of risk and you can lose more than your original investment. They are not suitable for everyone so please ensure you understand the risks involved and if necessary please obtain investment advice from a financial adviser before investing.

For your reference, Accendo Markets Ltd. is Authorised and Regulated by the Financial Services Authority (FSA) No. 475285.