Fibonacci Spiral - the magic of numbers in market forecasting
The Fibonacci spiral is the most mysterious tool in the hands of a Forex trader. Actually, if we talk about the Fibonacci sequence and various tools based on it, we can highlight a number of such popular tools as arcs, levels and the Fibonacci fan.
All of the above tools have a history of successful use in technical market analysis, as well as specific training instructions for use.
What is there to worry about, if all the above tools are present in all trading terminals known to us.
However, despite the popularity of all these tools, the
Fibonacci spiral is an exception, since almost no one uses it and not a single successful trader has written a practical tutorial on it.
The history of the appearance of Fibonacci numbers dates back to the 12th century, and the discoverer of this sequence was the son of a major merchant, Leonardo Fibonacci. One day, Fibonacci was faced with a difficult task, the essence of which was to determine how many rabbits a pair could breed in one year in closed conditions.
Through simple calculation, Leonardo learned about a sequence of numbers in which each new value was the sum of the previous two. Moreover, if we take the ratio of two adjacent numbers in the sequence, then it was close to or equal to 1.618.
Having seen such a simple pattern, Fibonacci began to actively study various literature and it turned out that such a relationship is found not only in the problem he was considering, but also in many objects of living nature, as well as outer space.
The magic of numbers and ratios haunted many scientists of that time, but an example of the ideal Fibonacci figure was the spiral that was found when studying the shell of a snail. The actual shape of the snail’s shell became the basis for the construction of the Fibonacci spiral.
Fibonacci spiral in MT4. Installation
As we have already mentioned, the Fibonacci spiral is not present by default in any trading terminal for the Forex market, therefore, in order to build it, it is necessary to install a custom indicator directly into the MT4 trading terminal.
After downloading the indicator at the end of the article, place it in the appropriate folder in the terminal data directory. In order to access the data directory, launch your trading terminal and open the file menu. You will see a list of options, among which you will need to open the “data directory”.
After opening the data directory, find a folder called indicators and drop the previously downloaded indicator into it. Next, close the data directory and update the platform. After you restart the trading terminal, the FX5 FiboSpiral indicator will appear in the list of custom indicators.
In order for the tool to display the Fibonacci spiral on the chart, just drag the indicator onto any currency pair of your choice. You will end up with a graph like this:
Correct construction.
Application in practice Unfortunately, on the Internet you will not find practical instructions on how to correctly mark a spiral, but we can say with confidence that the indicator builds it in the wrong way, since there is no predictive effect on the chart.
In order for the spiral to be displayed correctly, you need to drag the blue square and stretch it between the points of the first or third Eliot wave.
After you stretch the central square, the spiral will change on its own. If we talk about practical application, the turns of the spiral are considered as strong levels of support and resistance, as well as time zones, thanks to which it is possible to determine the likely points of price spikes.
In order to mark support and resistance levels, it is necessary to draw horizontal lines at the points of contact of the spiral.
Reversal points and dates are marked on the chart by drawing horizontal lines that touch the rim of the spiral. Example:
After you have marked all the support and resistance levels, the principle of trading comes down to opening positions for their breakdown or rebound (depending on the market situation that you observe).
In conclusion, I would like to note that the Fibonacci spiral at first glance may seem like a rather complex technical analysis tool .
However, this opinion was formed not because of the technical features of the spiral, but because of the lack of practical information on its use. Download the required indicator .