Fibonacci is a theory so wide-ranging that it cuts across many areas of knowledge, and the financial market couldn’t be left out. Understand how an almost millennia-old theory can help you identify reversal patterns in markets like IQ Option and make money from it.
One of the most popular strategies in binary options and trading in general, Fibonacci, or even affectionately called “Fibo”, literally has a lot of history.
Did you know that Fibonacci originated almost a millennium ago? It’s quite curious how something so old and predating any kind of trading on the financial market in the way we do today, is such a popular tool and widely used by traders all over the world.
For this reason, Fibonacci certainly deserves its own article. Here’s how it came about and how you can use it to your advantage in binary trading.
Below we’ll explain how you can use Fibonacci at IQ Option.
Who was Fibonacci anyway?
Although it sounds like it, Fibonacci doesn’t refer to anyone’s first and last name, but to a surname. This name was given in honor of the great mathematician Leonardo of Pisa, originally from this place that today belongs to Italy, who in 1202 created this theory that we will explain below.
He published on this formula which was already known to mankind, but which from his study would become known as the Fibonacci Sequence or Succession.
So we’re talking about a theory that is at least more than 800 years old. But after all, why and how is something as old as this sequence of numbers still used today, and in something as important as the financial market?
So, what is Fibonacci?
In a nutshell, Fibonacci is a sequence of whole numbers whose third element always corresponds to the sum of the previous two.
We’ll help you visualize the sequence below:
0, 1, 1, 2, 3, 5, 8… __
The third element of the sequence equals “1”, because the first element is “0” and the second is also “1”. Therefore: 0+1 = 1.
This can also be done for the following numbers in the sequence. Look at the number “5”, the two numbers before it are “2” and “3”, which correspond to “5”.
To make sure you understand this ancient theory, write down on a piece of paper or even in your browser the number that should complete the sequence listed above (right after the number 8).
For now, follow the article as we explain how to use Fibonacci on IQ Option.
The Golden Rule – Phi Number
We understand that mathematics isn’t usually one of the most interesting topics to read about, but we promise that this will be the last about it. We need to go over the math again so that you can understand the last concept and understand once and for all how Fibonacci works at IQ Option, in addition to the other brokers on the financial market.
We have now separated a higher sequence of numbers from the Fibonacci Sequence:
21, 34, 55, 89, 144, 233, 377, 610
You can try it out with us: use your calculator and divide one number by the one before it.
The result you’ll find will always be close to 1.618, which is considered the golden rule. The ratio described by this number is the one that is present even in forms of nature, and it will also be present when you, for example, plot Fibonacci on IQ Option.
Fibonacci and the Financial Market
After all, what does a number sequence theory have to do with the financial market?
In fact, you should know that the Fibonacci Sequence not only has to do with the financial market, but also with art, architecture and even nature. This sequence can be visualized in various aspects of natural life, such as rose petals, for example.
In the financial market, at brokers such as IQ Option, Fibonacci is used not as a sequence, but as a retracement tool whose pattern is repeated over and over again in the financial market every day.
You know that golden rule we mentioned just above, 1.618? This number transformed into a percentage represents 61.8%, something you must surely have seen if you’ve ever seen anyone applying Fibonacci on IQ Option.
How to use Fibonacci on IQ Option?
Well, now that you’ve understood how the Fibonacci Sequence works and the golden rule, let’s delve into the important aspects that remain: how to use Fibonacci on IQ Option and the Fibonacci Retracement.
First of all, it’s important to point out that this tool can be used on any asset and market, so you don’t need to worry about whether or not it works on your favorite assets.
The Fibonacci lines on IQ Option (and other platforms) are formed by horizontal markings whose most common points are the following values: 23.6%, 38.2%, 50%, 61.8% and 100%.
These are the reversal zones, which, if reached, can indicate this movement (reversal) in the value of a particular asset.
When to draw Fibonacci lines on IQ Option?
The first thing you need to know is to understand support and resistance. If you understand these concepts well, that’s great, because they’re fundamental to trading.
If you don’t, here’s a quick explanation: support and resistance are barriers that the price of an asset has difficulty breaking through, the lower barrier being support and the upper barrier being resistance. In short, they are zones that the asset’s price “respects”.
When close to one of these two (support or resistance), it is common for the asset’s price to retreat in the opposite direction.
In IQ Option, Fibonacci should be drawn when the price reaches an important support or resistance, preferably with a large amplitude.
How to draw Fibonacci lines on IQ Option?
To use Fibonacci on IQ Option you need to select the “Chart Tools” option and then “Fibonacci Lines”.
You should identify the main support and resistance zones and draw Fibonacci from one extreme to the other, so you have the main retracement zones available on the chart.
Follow the market’s progress and wait for reversals near the Fibonacci zones, they will provide good entry and profit opportunities.
We need to emphasize that there’s no such thing as a sure win in the financial market, but there is such a thing as increasing your chances of winning, so always remain cautious and manage your risks!
And if you were curious to know the answer to our question in the first half of this article, the answer is 13. Let us know in the comments if you got it right!
After reading this article, you can learn how to use Fibonacci by opening a demo account on the IQ Option platform, and get to know the most interesting trading strategies.
