Fibonacci indicator

 What are Fibonacci Retracements?

Fibonacci retracements identify key levels of support and resistance. Fibonacci levels are generally calculated after a market has made a big move up or down and appears to have stabilized at a certain price point. Traders plot the key Fibonacci retracement levels of 38.2%, 50%, and 61.8% by drawing horizontal lines on a chart at those price levels to identify areas that the market could retreat to before recovering. initial price movement.

How does Fibonacci work in trading?

Before examining the mechanics of Fibonacci trading and how it translates into a Fibonacci Forex trading strategy, it is important to first understand the Fibonacci sequence and the unique mathematical properties it offers.

The Fibonacci sequence is a sequence of numbers in which after 0 and 1 each number is the sum of the two previous numbers. Lasts indefinitely.

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, 6765 ...

There are some interesting relationships between these numbers that form the basis of Fibonacci number trading. While we can't cover all of these relationships in this article, here are the main ones to be aware of when looking at a Fibonacci forex trading strategy later on:

If you divide a number by the number above, you get approximately 1,618. This is used as a key level in Fibonacci extensions, as you will learn later in this article.

If you divide a number by the next highest number, it is approximately 0.618. This number forms the base of the 61.8% Fibonacci retracement level.

If you divide a number by two more digits, it gives approximately 0.382. This number forms the base of the Fibonacci retracement level of 38.2%.

1.618 is known as the golden ratio, golden ratio, or phi. The reverse is 0.618, and both numbers can be found in nature, biology, and the cosmos. In fact, William Hoffner of the Smithsonian Magazine said in December 1975: “The ratio of 0.618034 to 1 is the mathematical basis for the shape of playing cards and the Parthenon, sunflowers and snail shells, Greek vases and the spiral galaxies of the outer Greeks formed. much of his art and architecture on that relationship.

Trade Fibonacci Retracements

Every trader, especially a beginner, dreams of mastering the Fibonacci theory. Many traders use it to identify potential support and resistance levels on a price chart, suggesting that a reversal is likely to occur. Many are entering the market simply because the price has reached one of the Fibonacci ratios on the chart. Is not sufficient! It is best to research other signals before entering the market, such as reversing the candlestick patterns or oscillators that cross the baseline or even a moving average to confirm your decision.

Best Fibonacci Trading Strategies

Fibonacci retracement lines are often used as part of trend trading strategies. When a reversal occurs in a trend, you can use Fibonacci levels to place a trade in the direction of the underlying trend. The idea is that the price of a security is more likely to jump from the Fibonacci level to the original trend. Fibonacci levels can be useful when a trader is looking to buy particular security but has not seen a recent uptrend. In this situation, you may be waiting for a withdrawal. By displaying Fibonacci indices as 61.8%, 38.2%, and 23.6% on a chart, traders can identify potential retracement levels and enter potential trade positions.

The Fibonacci levels are used for different strategic trading names, the following:

1 Combination of Fibonacci retracement lines with the MACD indicator. This strategic research has crony of the MACD indicator that the price of a title touches an important level of Fibonacci. In this case, a position can be opened in the direction of the trend.

2 Combine the Fibonacci levels with the stochastic indicator. This two-line indicator is intended to help identify levels of overbought and oversold. The strategy looks for the key signals of the stochastic indicator when the price reaches an important level of Fibonacci. The two signals taken together indicating an opportunity to open a position.

3 The levels of Fibonacci retracement can be used over several periods, but are considered as the most precise over longer periods. For example, a retracement of 38% on a graph that has been completed is a more technical level that a retracement of 38% on a graph of five minutes. Learn more about choosing the right chart period.

Like for all the analysis techniques, the Fibonacci retracement levels are most effective, but they are used as a larger strategy. The combination of several indicators offers the possibility of recognition plus precisely the tendencies of the march and of adding the potential for profit. As a general rule, the more confirming factors there are, the stronger the trading signal  read more.

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