Though trading forex can’t make you an overnight millionaire, it’s still acceptable to try your hand in it. You never know whether it’s the one destined to deliver you from jaws of poverty and lack.
Using the right strategy and tools, you can win many trades and live to tell your story many years ahead.
We’ll speak about Fibonacci retracement levels in this article. So, What are Fibonacci retracements level is?
Fibonacci Retracement Levels Defined
Fibonacci retracement levels are horizontal lines that show potential resistance and support levels where the price can reverse direction.
One crucial thing to understand about the Fibonacci tool is that it performs best when the market trends.
The basic idea is to buy on a retracement at Fibonacci support when the markets are moving up. And to sell on a retracement at a Fibonacci resistance level when the needs are going down.
Fibonacci retracement levels are a simple predictive technical indicator as they try to recognize where the price might be short.
The speculation is that after prices start a new shift direction, the costs will eventually retrace or go back to where it was before going back to the direction of its recent trend.
Most forex traders utilize Fibonacci retracement to detect where to put orders for entering the market, stopping loss orders, and taking profits.
Fibonacci levels are usually used in trading forex to recognize and trade-off resistance and support levels. Following a substantial price movement down or up, the new resistance and support levels are usually nearby these trend lines.
Facts About Fibonacci
The Fibonacci trading strategy always utilizes the golden ratio to govern entry and exit points for trades of every time frame.
This kind of trading system is hotly contested because it’s based on ratios that do not correspond to a specific trade.
Remaining loyal to a numerical trading plan such as the Fibonacci strategy helps remove or limit many trades’ emotional bias.
Each trader uses a different strategy. No strategy can fit all traders. As an esteemed investor, you must consider how every plan may do your angle on the financial markets.
As a trade, you should have a strategy or a trading style to maximize profit and control your emotions. The Fibonacci trading strategy uses hard data. If you take heed to their plan, your emotional interference will be minimal.
Fibonacci Retracement Levels
Fibonacci retracement levels are;
- 78
- 168
- 5
- 236
The Fibonacci retracement indicator is useful. You can draw it between two remarkable price points: a low and a high price point. The indicator creates a retracement level between the points.
Reasons Why Fibonacci Retracement levels are sufficient Market Indicators
You can easily spot the golden ratio in many contexts. But why is it so? Because it just appears right.
Several buildings in history, such as the Egyptian pyramids, are constructed using the golden ratio simply because they appeal to the eye.
Having traders looking at a similar chart and deciding exit and entry levels that appear right, resistance and support levels appear naturally and return to the golden ratio. In turn, this supports the effectiveness of using Fibonacci retracements in your market analysis.
How Fibonacci Sequence Came Into Existence
Leonardo Pisano, or Leonardo Fibonacci, a talented Italian Mathematician, discovered a sequence of numbers that always return to a consistent ratio if you divide one number with the following number in the series.
Every number in the Fibonacci sequence equals the total of the two numbers before it. The series begins with 0 and 1 and goes on as follows.
1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, and so forth.
Let’s break it down.
1+2= 3, 3+5= 8, 8+13= 21, 21+34= 55, 55+ 89= 144
You get the gist. Right?
The 0.618 ratios is referred to as the Golden Ratio, and you can see it in different natural phenomena.
The Fibonacci sequence’s intriguing fact is that it comes back to the same ratio if you divide one number with the following number in the series, eliminating the initial few numbers.
Example
34 divided by 55= 0.618 so it is for 55 divided by 89, 89 divided by 144, 144 divided by 233, and so forth. That’s how you arrive at the golden ratio ( 0.618).
If you divide every number by the number of two places to your right, you’ll always obtain 0.382.
For instance, 13 divided by 34, 21 divided by 55, 34 divided by 89, and 89 divided by 233, all returning to 0.382.
Final Thoughts
Hone your trading skills through discipline and practice. Also, carry out self-analysis to identify what steers your trades and learn how to keep greed and fear out of the equation. Practice these skills, and you’ll always trade like a pro.
