Beginner's Guide to Using Fibonacci in Forex Trading |
Posted: May 15, 2019 |
This article will act as a Fibonacci for dummies guide and help you to understand the concept of Fibonacci in a more in-depth manner as well as help you to apply it on your next Forex trading session. So, what are Fibonacci numbers? In short, the Fibonacci ratios or numbers are numbers that are mathematically significant and it occurs throughout nature as well as in financial markets. These vital numbers were discovered by Leonardo de Pisa in the 13th century, and this man was known as one of the most talented Mathematician in the era of the Middle Ages in Europe. The most important number or ratio in Fibonacci is 61.8%, or .618 levels. There is also a 1.618 Extension along with 2.618. In the Forex trading environment, the Fibonacci retracements can help you to identify potential support and resistance levels in the market.
There are many different opinions regarding how the Forex market works. Each opinion tries to approach the stock price trend charts differently and utilize them to extract different sorts of information about how prices are likely to perform in the market.
The most important thing that you need to know when dealing with Fibonacci numbers is that the base of the trend line should be drawn from the left side to the right. If there is a bullish trend in the market, and you are currently observing a retracement to the downside, then you would need to look for support at one of the levels appearing on the chart. If you are currently witnessing a bearish trend in the market and a retracement is taking shape, then you wouldneed to look for resistance. You can also have access to more Investing news such as this by clicking on the link above.
An important note behind using any kind of methodology is that you cannot make a perfect prediction on the future price change of a stock. So, the next best thing that you and I can do is to observe the levels of support and resistance in a watchful manner. Once you can identify a support in an uptrend or resistance in a downtrend, then you can make close to accurate predictions by using the levels of resistance as price targets.
There are two primary methods that you can use to trade with Fibonacci numbers. You can use the Fibonacci Retracement levels in the direction of the prevailing trend and using either Fibonacci Retracement / Extensions as targets or Fibonacci Expansion Tool.
An easy way to think of these Fibonacci retracement vs extensions is that extensions are elements that can go beyond 100% with the same tool used to find retracement levels. In order to find an extension level that is situated in a downtrend, you would need to run the low to high extension for finding possible support. Reversely, on an uptrend, you would need to run the high to low extensions for finding possible resistance that can act as targets for profit. The levels most commonly used are the 1.00%, 1.272%, 1.618%, 2.00% or 2.618%.
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