Fibonacci Retracment/Extension
Fibonacci sequence is all around us market is no exception.We will find this indicator at most traders setups.The use of fibonacci can give great signals for entering or exit market so we will examine fibonacci in depth as we believe its a must for all traders.
BE SURE TO READ ENTIRE ARTICLE SO YOU WILL FULLY UNLOCK FIBONACCI POWER.
Leonardo Fibonacci was the father of the fibonacci sequence.In forex and other markets fibonacci indicator gives levels that can help predict price move.The indicator needs to be drawn in a chart ,so it is crucial traders must choose the correct 2 points to draw the indicator.We do not recommend auto indicators for a lot of reasons.
When the indicator is applied at chart it will give us those levels.
23.6%, 38.2%, 61.8%, and 78.6% traders are also using the 50% ratio.
The lines we see at chart 1 are called Fibonacci Retracement.
So now the most important step is HOW and WHERE we will draw Fibonacci indicator.We have to identify a low and a high point of a move.Most guides and trading examples lack the most important step of correct place to draw indicator.Most tutorial just pick places that works.what about LIVE trading?
Bigger timeframe charts gives better levels.Lets try a daily chart for start.
At chart 2 we can see 2 points the low and the high.Lets use fibonacci indicator and draw a line from the bottom candle to the highest.Be sure to draw from tail of low to the wick of high and not from candle bodies.
Fibonacci indicator must incude all of the levels we mentioned.If you see some missing be sure to add it.
Now second step is be able to tell how to use this indicator.
1.Resume of trend
2.Trend reversal
3.Consolidation periods(sideways movement)
Lets examine some charts together.
1.Resume of trend
In a reversal situation price will hit a fibonacci level and head the other way.
Most promising levels are
50%,61.8% and our top pick 78.6%.
That doesnt mean other levels can’t provide signals.Those levels seems to work more and better for most traders.After we find the correct way to draw fibonacci we will be checking for reversals.
In this situation price will hit some levels and reverse and eventually resume the trend.So we can trade those levels with setting our take profit and stop loss.We can see an example at chart 2.3 and 4.
2.Price hits 38.2 lvl and resumes trend.
3.Price hits 78.6 lvl and resumes trend.
4.Price gets rejected 3 times at 61.8 and resumes.
All charts are 4H timeframes so if we draw fibonacci and move to 1H chart we will have more details.
2.
3.
4.
2.Trend Reversal
As we see at example 5 price hit lvl 50 after that 61.8 and totally reverse trade breaking 100 lvl.So we can see that fibonacci levels can be used also to identify price reversal.Fibonacci Can be traded profitably and can be used as take profit and stop loss too.
At example 6 we can see mixed movement and thats the beuty of price trade.
61.8 gets hit 2 times and finally at 3d time price moves through all levels and reverse.After breaking 100 lvl price hit 161.8 extension level which is a perfect take profit spot.
We will talk about extensions later on this article.
At example 7 we can see mulitiple entries at levels breakouts.Trend reverses again in this chart.
5.
6.
7.
3.Consolidation(Sideways movement)
Some traders avoid completely low volume and sideways periods in markets.
Some of them make a very good amount of pips trading it smart.It all comes at what type of trader you are.Price can be caught in fibonacci areas makes it easy to trade between those levels.Lets see some examples.
8.
9.
10.
4.Fibonacci Extensions
Fibonacci extensions are key levels that we see for potential reversals and take profit areas.
At our 4h LUNA chart we clearly see that price hit the first fibonacci level and break above until it reached 1.618.It is so powerfull that a take profit just below that level could bring us a really good profit.
Some additional examples below.
11.
We can clearly see that fibonacci power can be used at all markets.The charts above are daily so we can understand that potential profit can be really good and we can avoid sudden moves of the markets.Fibonacci is clearly a unique tool that can be used alone if someone can master it.