Fibonacci forex trading is directly associated with finding entry and exit points while trading in the volatile forex market. A series of numbers, rations and patterns are used for establishing the different positions to secure profits. Fibonacci retracement help in extending benefits to foreign currency exchange investors and traders. It helps in establishing profit-making targets, resistance areas and identifying support.
Fibonacci forex trading focuses on the need of a trader required by a broker. It may include software, tutorial videos, formulas and analysis tools.
In the trading world, Fibonacci retracement is an important and common method of technical analysis. It uses ancient mathematical scripts to identify the possible resistance levels and support and evaluate price movements as a template.
What are Fibonacci numbers?
The name Fibonacci stems from a renowned Italian mathematician Leonardo Fibonacci. By summing the two figure proceedings, the infinite progressive numbers’ sequence gets calculated. For example 21,13, 0,1,1, 5,8, etc. But when you are trading forex more than the numbers, the difference between them is important for trailers.
What is Fibonacci retracement in forex trading?
In forex trading, it is the established support area. It is the point where the price does not decrease. Moreover, there’s resistance, beyond which the price does not increase. A relation with the price of forex assets being evaluated is drawn through the Fibonacci retracement levels. A horizontal line is represented by every retracement level on a trading chart. These levels get identified for analysis purposes.
For determining Fibonacci levels, a trendline is connected between the high and the low. These ratios stratify the vertical distance.
Fibonacci support and resistance levels
The main aim of Fibonacci levels is to find or locate resistance and support levels. Thus, when security fluctuates or moves down and up frequently, it generally pulls back slightly instead of continuing the trend.
It retraces to essential levels of Fibonacci retracements like 61.8 per cent to 38.2 per cent. In the trend’s original direction, these levels offer signals to traders for entering fresh positions.
When the trend is low, in that case, a trader might think of going short (selling) the forex currency pair. It means that the pair retraced to its resistance level. Likewise, when the market shows an upward trend, an investor may go long (buying) on a retracement, slipping to a crucial support level. Fibonacci retracement has a special place for forex traders. It is malleable with its market strategies and analysis. However, it offers exaggerated potential levels that provide insight into looking beyond the market trends and earning profits. I
More importantly, the tool works to the best of its potential when currency pairs trend down or up.
If someone wishes to apply Fibonacci levels to their charts, they’ll need to first identify swing low and swing high points.
Swing low: It is a candlestick that at least has two higher lows on the right and the left side.
Swing high: It is a candlestick that exhibits at least two lower highs on the right and the left side.
Fibonacci trading strategies
For trend-trading strategies, Fibonacci retracement lines are used by investors. They help in magnifying gains during currency trading. If you locate a retracement initiating within a trend, Fibonacci levels can be used to place the trade in the underlying trend’s direction. More importantly, there is a chance that the currency pair’s price would bounce back to the Fibonacci level to the direction of the initial trend or where it started.
Fibonacci retracement has a special place for forex traders. It is malleable with its market strategies and analysis. However, it offers exaggerated potential levels that provide insight into looking beyond the market trends and earning profits. I
Interestingly, the Fibonacci does not only apply when the market is surging or going up. Even when the market falls, it creates an opportunity for earning money. Application of retracement takes place for bouncing back up.
Fibonacci levels can be utilised across several strategies.
- A user can use Fibonacci retracement levels across many timeframes. However, for accuracy, one has to wait or invest in longer timeframes. For example, a 40 per cent retracement on a monthly chart is a more crucial technical level compared to a 38 per cent retracement on a weekly chart. Thus, choosing a proper time frame is essential for drawing bigger benefits in forex trading.
- Fibonacci retracement lines can be combined with the MACD indicator. When the price of a currency pair reaches a crucial Fibonacci level, the strategy crosses over the MACD indicator or looks to do that. When the event takes place, a trader can open a position in the trend’s direction.
- Fibonacci levels can be combined with the stochastic indicator. A trader can know oversold and overbought levels through the two-line indicator. When the price reaches the tipping point of the Fibonacci level, the strategy searches for crucial signals from the indicator. The two signals exhibit the possibility of opening a position.
For drawing broad effectiveness of Fibonacci retracement levels, it is vital to use bigger strategies, which is the case with some technical analysis tools. If a trader wants to find the market trend accurately, it is recommended to use a combination of several indicators.
Forex trading style in Fibonacci retracements
For magnifying profits in the forex market, every trader has a trading style and strategies. Moreover, it is important to keep emotional quotient in check while applying Fibonacci retracements as that might sometimes cause losses. A trading style must be backed with planning, timing and logic. The Fibonacci strategy uses hard data and when a trader follows that strategy, turns out victorious or garners great returns.
Fibonacci retracements are applicable on both long terms and short term strategies and trades as they deem fit to a trader. However, most trades are exited on a short term duration.
Fibonacci retracement has a special place for forex traders. It is malleable with its market strategies and analysis. However, it offers exaggerated potential levels that provide insight into looking beyond the market trends and earning profits. If these are intermixed with risk management strategies, there can be enough benefits sourced out of them. Interestingly, for forex trading, several charting software have Fibonacci retracement levels. For applying the strategy, a trader needs to identify swing low and swing high points.