It is recommended for traders to understand the mathematical properties of the Fibonacci sequence before understanding the way it works and how it can be used as a trading strategy. To begin, the Fibonacci sequence is a series of numbers that contains the sum of the two preceding numbers. The series are unlimited, and it goes in a pattern like this: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, 6765…

The series of numbers share a relationship that became the foundation for Fibonacci numbers trading. Explaining the relationship the numbers have will take a long time. For this reason, the most important ones are selected to be explained below:
Dividing a particular number in the sequence by the preceding number will result in an estimated quotient of 1.618. This value functions as a key level in the Fibonacci extensions which is going to be further explained in the next topics.
Dividing a number by the next highest number will provide an estimated result of 0.618. This particular number is used as the basis for the Fibonacci retracement level: 61.8%
Dividing a number by another two places higher will result in an approximate value of 0.382. This particular number serves as the basis for the Fibonacci retracement level: 38.2%.