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Fibonacci retracements and extensions is one of the more obscure forms of trading indicator although it is also considered one of the most powerful and reliable. Nobody can say for certain why it works but the most important consideration for all traders using it is that it is highly reliable and does, for some reason or other, work.

Essentially it functions by placing a series of ratios between two chosen points on a candlestick chart. These ratios, more often than not, accurately predict the major resistance and support lines for a particular security. With this information a trader can confidently place pending buys and sells and they can accurately predict price targets for future movements.

The beginnings of Fibonacci retracements and extensions can be traced back to the 13th century. During this period an Italian mathematician named Leonardo Pisano, nicknamed Fibonacci, developed the Fibonacci sequence.

This was a sequence of numbers which determined ...