Fibonacci Analysis: How is it Applied in Futures Trading?

Fibonacci trading chart indicator drawing tool platform price levels

Fibonacci is a set of tools used to analyze market trend and direction and to fine-tune entries and exits. Based on calculations introduced by Italian mathematician Leonardo Fibonacci in the 13th century, these patterns and methodology have been adapted into several technical analysis tools frequently used today.

NinjaTrader empowers users with 4 distinct ways to use Fibonacci, including 4 Fibonacci drawing tools and a technical indicator!

See NinjaTrader’s Fibonacci tools in action in this quick video overview:

Fibonacci Sequence & Golden Ratio

Leonard Fibonacci helped popularize Hindu-Arabic numerals in Europe in the early 13th century and later introduced his renowned Fibonacci sequence. The Fibonacci numerical series is as follows, with each number being the sum of the previous two:

  • 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 …

Found within the Fibonacci sequence is the Golden Ratio, or roughly 1.618. If you divide a number of the sequence by the preceding number, the resulting ratio will be approximately 1.618.

  • 55/34 = 1.618

The Golden Ratio is commonly observed in nature, from seashells and pine cones to even spiral galaxies in outer space! Leonardo Fibonacci’s findings were clearly a revelation and an important discovery, but how do they relate to financial markets?

Market Analysis Using Fibonacci

Although it is unknown if these factors actually play a part in the movement of financial markets, Fibonacci patterns play a key role in technical analysis for many traders. Below are examples of NinjaTrader’s Fibonacci tools applied on trading charts.

  • Fibonacci Retracements/Extensions highlight potentially important price levels such as support and resistance. This tool is found in the Drawing Tools menu by right-clicking within a chart. After drawing a line between two points on a chart, Fibonacci Retracements may indicate important support, resistance, pullback and reversal areas.

  • Fibonacci Time Extensions plot Fibonacci values over the x-axis, or time axis of the chart. This tool can be found in the Drawing Tools menu. Unlike Fibonacci Retracements, which plot on the y-axis or price axis, Fibonacci Time Extensions use the same methodology in reference to time on the x-axis.

  • Fibonacci Circles are another way to plot Fibonacci values on a chart with concentric circles, referencing values on both the time and price axis simultaneously. This feature is also found in the Drawing Tools menu.

  • Fibonacci Pivots plot potential support and resistance levels calculated by multiplying the prior range against Fibonacci values. Similar to retracements or extensions, Fibonacci pivots can help to point out significant price levels such as support and resistance. This tool is found in the Indicators menu, which can be accessed by right-clicking within a chart.

Free Market Analysis with NinjaTrader

Combining Fibonacci tools with additional technical analysis techniques and indicators can help confirm trends, reversals, and overall market sentiment. No matter the analysis approach, employing proper position management with risk mitigation measures is imperative.

With over 100 pre-built indicators to aid in your technical analysis of the markets, NinjaTrader is always free to use for advanced charting, backtesting and trade simulation. Download NinjaTrader’s award winning trading platform to get started with FREE Fibonacci tools!