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How to use Fibonacci in Forex

14 March 2016 No Comment

canstockphoto12370291The majority of traders prefer to use levels of support and resistance in their everyday work. However, not everybody can predict how the market will change in the nearest future. That is why Fibonacci levels in Forex are so popular.

Definition

 

Fibonacci levels are used to determine price retracements. It means that if a price impulse is vividly seen, but a trader does not want to join it right away, the indicator lines will depict moments of a better price.

With the help of the Forex Fibonacci strategy, a trader can determine:

  • possible targets of correction and trend continuation,
  • strong support and resistance levels,
  • favorable moments to enter the market,
  • best time to take profit,
  • a pinpoint for stop-loss orders.

Usage

 

There are standard indicators of Fibonacci in Forex most popular trading platforms. A mesh of indicators is applied manually on the chart. To set the levels, a trader needs to find the recent significant maximums and minimums of the last price swing. Then, for a descending trend, he clicks on max and pull the lines to a minimum. For an ascending trend, he needs to do just the opposite: click on the minimum price fluctuation and drag the cursor to the maximum.

There are several ways of how to use Fibonacci in Forex trading:

  • buy near 38,2%, using a stop-loss at a bit below 50%;
  • buy near 50%, using a stop-loss at a bit below 61,8%;
  • sell near the upper limit before the rollback;
  • if the rollback does not occur and the price continues to move in same direction (depicting higher highs or lows) then it is better to pull the grid based on the new local maximums or minimums.

Note

 

It is believed that during strong market movements, prices can be rolled back by 23.6%, 38.2% or 50%. These Fibonacci retracement Forex lines are considered to be “normal”. But if the price falls to the 61.8% (or more), it is a serious signal of probable price reversal.

The point is that the trader should always expand the horizon of knowledge and develop skills. Sometimes it is essential to add some useful tricks from other indicators and strategies, which are described in various articles on Forex trading.

Additional assistant for reading Fibonacci levels

 

Many platforms can easily calculate and draw the lines in graphs. Nevertheless, there is a special Forex Fibonacci calculator, which is a powerful tool for technical analysis. It works online and helps to analyze the levels of support and resistance for a current trend. It depicts the most important breakouts or bounces. It aims at organizing the trade in a regular profitable manner in combination with automatic calculations.

Advantages and disadvantages

 

Advantages Disadvantages
1. The strategy is based on mathematical patterns and can be performed automatically. It gives smaller profits.
2. Signals are quick and clear. It requires experience in reading graphs.
3. Fibonacci Forex trading system has no parameters that need to be changed and adjusted to current trends on the market — it’s as strong as decades ago. It is better to use additional indicators to exclude any mistakes.
4. Orders are opened in the direction of the trend, at the beginning of a new pulse.

 

Fibonacci levels are quite simple and convenient tools for determining price adjustments. By themselves, these lines have no value. This tool only works in combination with other methods of technical analysis in Fibonacci Forex trading strategy. A trader needs to learn how to correctly identify powerful pulses and to follow them.

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