This is said to be the most universal technical trading tool on the landscape of financial markets. The Fibonacci indicator is based on Leonardo Fibonacci’s mathematical theory, which suggests that a certain key number sequences create **ratios** that repeat themselves in most facets of life; in this case, we would be looking at how the forex market reacts around Fibonacci numbers.

The Fibonacci sequence is a series of numbers where the subsequent number is the sum of the two preceding numbers.

*Example*: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89.

The ratios are created by picking any of the numbers further down the series and dividing by the subsequent numbers that follow

Example: let’s pick 8

Divided by 13 = 0.618

21 = 0.382

34 = 0.236

While you can go on and on, the Fibonacci ratios that are relevant to us in technical trading are as follows:

0.236, 0.382, 0.500, 0.618, 0.764 (Fibonacci retracement levels)

0, 0.382, 0.618, 1.000, 1.382, 1,618 (Fibonacci extension levels)

It is not at all necessary to memorize these levels as you have them already programmed in most trading platforms. In MT4, it is readily available on the toolbar, as discussed earlier.