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The Fibonacci moving average
Moving averages (MA) and crossing moving averages are the most used technical indicators because of their simplicity and their proven track record of adding value to a chart.
Some traders use the Fibonacci sequence in order to calculate their MA. If you divide each number in the Fibonacci sequence by its predecessor the result converges on to approximately 1,61803, otherwise known as the golden ratio in nature.
The Fibonacci Moving Average is an equally weighted exponential moving average using the lookback periods of the first 15 Fibonacci numbers beginning with 2. Two versions are used by traders:
Standard mode: The Fibonacci Moving Average is calculated from the close price and plotted as a single line.
Ehanced mode: The Fibonacci Moving Average is calculated from the high and low prices and plotted as a band.
These are the advantages of the Fibonacci moving average:
- A very good trend indicator
- Can be used in all time frames
- Can be used on all instruments
- Easy to understand and easy to use
- The indicator is FREE
This example shows the enhanced Fibonacci moving average applied on a 30-minute chart as a filter (green background = bullish trend). You can clearly see how strong this indicator is in its uninterrupted and correct identification of the bullish market trend. The Fibonacci Moving Average is a good indicator to filter out “noise” in the market.
Open the chart of the instrument you wish to trade.
In the WHS Proposals folder, select the Fibonacci moving average.