# Technical Analysis: Fibonacci Sequence

Watch this RJOF Quick Tips: Fibonacci Sequence video presented by our Senior Market Strategist, Eli Tesfaye to learn what the Fibonacci Sequence is and how to implement it in your futures trading plan.

What is the Fibonacci Sequence?

The sequence was first introduced by Leonardo Bogollo, better known as Fibonacci. It is the oldest known recursive sequence, where each successive term can only be found by performing operations on previous terms. Fibonacci works by finding a successive term by adding the two preceding terms together. For example, in the sequence {1, 2, 3, 5}, 1 + 2 = 3, 2 + 3 = 5, and so on.

Fibonacci and the Futures Markets

The most common Fibonacci technical “retracement” levels followed by most market participants are 23.6%, 38.2%, 50%, 61.8%,100%, and 161.8%. For example, on up trending market, if the price pulls back to 38.2%, 50%, 61.8% and continues to go in the original direction, then it would suggest that the market made a normal correction/profit taking etc. otherwise, if the market pulls back below the 61.8% correction level indicates a reversal or sideways market. The same can be said about down trending market. See the two diagrams below to get an idea of normal corrections on either up trending or down trending market. Traders can calculate these Fibonacci levels from any time frame of their choice on any tradable contract. Traders are encouraged to use Fibonacci retracement levels with other technical analysis indicator for confirmation.

When to Use Fibonacci

Support and resistance levels are major component of technical analysis study. These levels are often referred to as fight between bulls (buyers) and bears (sellers) struggle to define price. Traders closely monitor markets prices action above (resistance) and below (support) for direction. When determining support and resistance levels, traders will be well served to apply key Fibonacci percentage “retracement” levels on their charts.

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