Open an Account Contact Us EN Search FOREX.

com  Login

MARKETS SERVICES PLATFORMS MARKET ANALYSIS EDUCATION ABOUT US SUPPORT

Technical Analysis
Recommended Topics 
Fibonacci Theory
24

Charting Basics Bars vs

A bit of history of Fibonacci Candlesticks
What are bars and candlesticks? A chart i…

Before we get in too much about what Fibonacci is, let’s first answer the question “who is
Fibonacci?” Leonardo Pisano, or Leonardo Fibonacci as he is most widely known, was a European Understanding Technical
mathematician in the Middle Ages who wrote Liber Abaci (Book of Calculation) in 1202 AD. In this Analysis
Learn the specifics of technical analysis, …
book he discussed a variety of topics including how to convert currencies and measurements for
commerce, calculations of profit and interest, and a number of mathematical and geometric
Bullish and Bearish Flags
equations. However, there are two things that jump to the forefront of our discussion in today’s Learn to use Bullish and Bearish Flags to …
world. First, in the beginning portions of Liber Abaci he discussed the benefits of using the Arabic
numeral system. At the time, the influence of the defunct Roman Empire was still strong, and the The Doji Candlestick Formation
Learn about Doji, their meaning, and how…
preference of most European citizens was to use Roman numerals. However, in Liber Abaci,
Fibonacci provided a very powerful, influential, and easy-to-understand argument for using the
Arabic numeral system. From that point on, the Arabic numeral system got a strong foothold in Fibonacci Theory
A history of the Fibonacci theory and var…
the European community and soon became the dominant method of mathematics in the region
and eventually throughout the world. It was so strong that we still use the Arabic numeral system The Hammer Candlestick
to this day. Formation
Learn to use the Hammer Candlestick the…
The second important section of Liber Abaci that we use today is the Fibonacci sequence. The
Fibonacci sequence is a series of numbers where each number in the series is the equivalent of
the sum of the two numbers previous to it.
Build your confidence
SIGN UP FOR RISK FREE DEMO ACCOUNT

All Themes

TRADING CONCEPTS

MANAGING RISK

As you can see from this sequence, we need to start out with two “seed” numbers, which are 0 TECHNICAL ANALYSIS
and 1. We then add 0 and 1 to get the next number in the sequence, which is 1. You then take that
value and add it to the number previous to it to get the next number in the sequence. If we
TRADING STRATEGIES
continue to follow that pattern we get this:

FUNDAMENTAL ANALYSIS

FOREX.COM PLATFORM TUTORIALS

METATRADER PLATFORM TUTORIALS

The Fibonacci sequence is so important to this discussion because we need those numbers to get
our Fibonacci ratios. Without the Fibonacci sequence, the Fibonacci ratios wouldn’t exist.
Trade your strategy
OPEN AN ACCOUNT
What Makes a Fibonacci Ratio?
With the advent of the internet, there has been a lot of misinformation on which values make up
Fibonacci Ratios. Proliferation of Fibonacci analysis, particularly in the realm of trading, has
encouraged misinterpretations and misunderstandings of how and what makes a Fibonacci ratio.
Let’s look at what a Fibonacci ratio is, how it is created, and some examples of those that are not
really Fibonacci ratios at all.

Fibonacci Ratios
The math involved behind the Fibonacci ratios is rather simple. All we have to do is take certain
numbers from the Fibonacci sequence and follow a pattern of division throughout it. As an
example, let’s take a number in the sequence and divide it by the number that follows it.

0÷1=0
1÷1=1
1 ÷ 2 = 0.5
2 ÷ 3 = 0.67
3 ÷ 5 = 0.6
5 ÷ 8 = 0.625
8 ÷ 13 = 0.615
13 ÷ 21 = 0.619
21 ÷ 34 = 0.618
34 ÷ 55 = 0.618
55 ÷ 89 = 0.618

Notice a pattern developing here? Starting at 21 divided by 34 going out to infinity you will
ALWAYS get 0.618!

We could do this with other numbers in the Fibonacci sequence as well. For instance by taking a
number in the sequence and dividing it by the number that precedes it, we see another constant
number that develops.

1÷0=0
1÷1=1
2÷1=2
3 ÷ 2 = 1.5
5 ÷ 3 = 1.67
8 ÷ 5 = 1.6
13 ÷ 8 = 1.625
21 ÷ 13 = 1.615
34 ÷ 21 = 1.619
55 ÷ 34 = 1.618
89 ÷ 55 = 1.618
144 ÷ 89 = 1.618

Another pattern develops out of the numbers of the Fibonacci sequence. Now 1.618 actually holds
even more significance because it is also called the Golden Ratio, the Golden Number, or the
Divine Ratio, but I could go on for many more pages about that subject.

Here are some more examples of patterns that develop by taking numbers in the Fibonacci
sequence and dividing them in a pattern with other numbers within the sequence.

DIVIDE BY 2ND DIVIDE BY 2ND DIVIDE BY 3RD DIVIDE BY 3RD

FOLLOWING PRECEDING FOLLOWING PRECEDING

0÷1=0 1÷0=0 0÷2=0 2÷0=0

1 ÷ 2 = 0.5 2÷1=2 1 ÷ 3 = 0.33 3÷1=3

1 ÷ 3 = 0.33 3÷1=3 1 ÷ 5 = 0.2 5÷1=5

2 ÷ 5 = 0.4 5 ÷ 2 = 2.5 2 ÷ 8 = 0.25 8÷2=4

3 ÷ 8 = 0.375 8 ÷ 3 = 2.67 3 ÷ 13 = 0.231 13 ÷ 3 = 4.33

5 ÷ 13 = 0.385 13 ÷ 5 = 2.6 5 ÷ 21 = 0.238 21 ÷ 5 = 4.2

8 ÷ 21 = 0.381 21 ÷ 8 = 2.625 8 ÷ 34 = 0.235 34 ÷ 8 = 4.25

13 ÷ 34 = 0.382 34 ÷ 13 = 2.615 13 ÷ 55 = 0.236 55 ÷ 13 = 4.231

 DIVIDE BY 2ND DIVIDE BY 2ND DIVIDE BY 3RD DIVIDE BY 3RD
FOLLOWING PRECEDING FOLLOWING PRECEDING

21 ÷ 55 = 0.382 55 ÷ 21 = 2.619 21 ÷ 89 = 0.236 89 ÷ 21 = 4.231

34 ÷ 89 = 0.382 89 ÷ 34 = 2.618 34 ÷ 144 = 0.236 144 ÷ 34 = 4.235

55 ÷ 144 = 0.382 144 ÷ 55 = 2.618 55 ÷ 233 = 0.236 233 ÷ 55 = 4.236

89 ÷ 233 = 0.382 233 ÷ 89 = 2.618 89 ÷ 377 = 0.236 377 ÷ 89 = 4.236

144 ÷ 377 = 0.382 377 ÷ 144 = 2.618 144 ÷ 610 = 0.236 610 ÷ 144 = 4.236

As you can see, we could get many different numbers by just taking numbers within the Fibonacci
sequence and developing a divisory pattern within the sequence. However, this is not the only
way to come up with Fibonacci ratios. Once we have the numbers from dividing, we can then take
the square roots of each of those numbers to get more numbers. See the chart below for some
examples of those values.

FIBONACCI RATIO OPERATION RESULT

0.236 Square root of 0.236 0.486

0.382 Square root of 0.382 0.618

0.618 Square root of 0.618 0.786

1.618 Square root of 1.618 1.272

2.618 Square root of 2.618 1.618

4.236 Square root of 4.236 2.058

The last part of making these numbers Fibonacci ratios is to simply turn them into percentages.
Using that rationale 0.236 becomes 23.6%, 0.382 becomes 38.2%, etc. So looking at our analysis
we can then see that 23.6%, 38.2%, 48.6%, 61.8%, 78.6%, 127.2%, 161.8%, 205.8%, 261.8%, and
423.6% are our bona fide Fibonacci ratios.

What about 50%?

While the 50% ratio is often used in Fibonacci analysis, it is not a Fibonacci ratio. Some say that
the 50% level is a Gann ratio, created by W.D. Gann in the early 1900’s. Others call the 50% level
an inverse of a “sacred ratio.” Just like the Fibonacci ratios, many people will either take the
inverse or square root of the “sacred ratios” to form more values. Some examples can be found in
the table below.

SACRED RATIO OPERATION RESULT INVERSE OF SACRED RATIO

1 Square root of 1 1 1

2 Square root of 2 1.414 0.5

3 Square root of 3 1.732 0.333

4 Square root of 4 2 2.236

5 Square root of 5 0.25 0.2

Whatever the source, the 50% ratio seems to be a rather important and relevant level when
trading, so often times it is included in Fibonacci analysis as if it were a Fibonacci ratio. Some of
the other numbers included in the table have been mistaken as Fibonacci ratios as well, but
obviously are not.

Whatever the source, the 50% ratio seems to be a rather important and relevant level when
trading, so often times it is included in Fibonacci analysis as if it were a Fibonacci ratio. Some of
the other numbers included in the table have been mistaken as Fibonacci ratios as well, but
obviously are not.

Share:   NEXT TOPIC THE HAMMER CANDLESTICK FORMATION

Related Topics

FUNDAMENTAL ANALYSIS
What Is Fundamental Analysis
Learn the basics of fundamental analysis and how it can affect the forex market.

MANAGING RISK
How to Develop a Trading Plan
Develop a thorough trading plan for trading forex.

FUNDAMENTAL ANALYSIS
Five Key Drivers of the Forex Markets
Learn about the five major key drivers of forex markets, and how it can affect your decision
making.
 MANAGING RISK
Managing Risk Efficiently in Six Steps
Our forex analysts give their recommendations on managing risk.

It's Your World. Trade It.

NEED HELP? CONTACT US CONNECT

Tell me more about the I would like to I would like to learn about

Costs associated with trading forex Fund my account Trading the forex markets
Forex markets I can trade Request a withdrawal Managing risk when trading
FOREX.com trading platform Download FOREX.com Desktop Trading in volatile markets
Minimum margin requirements Download MetaTrader Using technical analysis

Partnerships  StoneX  Affiliate Program  Investor Relations  Press Releases 

International 
DISCLOSURES AND RISK WARNING CUSTOMER AGREEMENT PRIVACY POLICY SITE MAP

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand
the risks involved, seeking independent advice if necessary.

Contracts for Difference (CFDs) are not available to US residents.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment
Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London
Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. is part of the GAIN Capital Holdings, Inc. group of companies, which has its principal place of business at 135 US Hwy 202/206, Bedminster, NJ
07921, USA. All are separate but affiliated subsidiaries of StoneX Group Inc.

© 2021 FOREX.com