#205
by amdudus
10 Things You Need to Know About Fibonacci
(Electronic translation from Russian)
Levels Fibonacci levels offer a wide range of information to a trader: price fluctuations within support and resistance levels, possible entry levels, possible profit target levels and stop loss. All this information is provided in one simple tool - Fibonacci levels.
No. 1: What are Fibonacci numbers?
Fibonacci numbers are mathematically derived numbers that are easy to compute. The Fibonacci sequence is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, etc. The bottom line is that each successive number is equal to the sum of the previous two (0 + 1 = 1), (1 + 1 = 2), etc. As numbers are added, a new number is created. The same principle applies to larger numbers: 89 + 144 = 233, and then 144 + 233 = 377. It is interesting that the numbers of the Fibonacci sequence tend to show quite well the tendency of how far the impulse movement can go in points. This is true for all currency pairs. Naturally, at lower timeframes, prices will adhere to lower Fibonacci numbers, while at higher ones they will adhere to higher ones.
No. 2: What are Fibonacci retracement levels?
These numbers are calculated by dividing the numbers of the Fibonacci sequence (mentioned above). For example: 8/13 = 0.618 .... or 61.8%. 34/89 = 0.382 ... or 38.2%. An exception is the 0.5 or 50% mark, which, in fact, is an intermediate number. Full list of Fibonacci retracement levels: 1) 23.6%, or 0.236 (13/55 = 0.236) 2) 38.2%, or 0.382 (13/34 = 0.382) 3) 50.0%, or 0.500 - half way 4) 61.8%, or 0.618 (13/21 = 0.618) 5) 78.6%, or 0.786 (the square root of 0.618) 6) 88.6%, or 0.886 (the square of 0.7864) This is an excellent method evaluation of market psychology. Who wants to get a 50% discount? Imagine you are standing in front of your favorite retail store, and suddenly a person comes out and says: "All products are sold at a 50% discount!" Guess what it gives? This creates great interest. The same is true in the Forex market: traders will use this opportunity as buyers! And last but not least: especially important in trading in the Forex market is the level of Fibonacci correction 618, because this is the number of Fi. The number of Phi is often called the golden ratio. Two quantities are in the golden ratio, if the ratio of the sum of the quantities to the greater is equal to the ratio of the larger to the smaller. In mathematics, this is expressed as ((A + B) / A) = Phi. But this number is not only important for trading in the Forex market: the number of Fi can be seen in art and even in nature!
No. 3: What are Fibonacci profit targets?
Fibonacci goals are very valuable, because they ensure the taking of large profits in the trend. The most important Fibonacci targets are: -0.272 -0.618 -1.618 Nevertheless, there are other Fibonacci targets that should be displayed on the chart: -0,180 -0,786 -1,000 -2,000 -2,618 -4,236
No. 4: When to use the Fibonacci retracement levels?
Fibonacci retracement levels are of great value for determining potential support and resistance levels. When using this tool to determine trading goals, the key is to know when to use the Fibonacci tools: the best environment is the trend markets. Fibonacci levels work best in trend markets and are absolutely useless when trading in ranges. It's very simple: Fibonacci levels do not represent any value in those zones where the price consolidates, demonstrates correction, trades in the range and moves in the flat. In these cases, traders should ignore these levels, because the currencies move and react to different levels and formations on the chart, such as tops and bottoms. However, if the currency is actually in a trend or if the Fibonacci levels are used on higher timeframes, then this tool is an excellent asset, because it is an excellent indicator of when the market will return in the direction of the trend.
No. 5: How to use Fibonacci retracement levels?
Fibonacci levels can also filter out entry points. No trader would want to open a long or short position in front of the Fibonacci key level, because his trading prerequisite would fail. Fibonacci levels are also used as a trigger instead of the exact entry point to the market. Each individual trader can have a certain Fibonacci level, on which they would like to trade. One way to address this issue will be to enter the market directly at the Fibonacci level. But traders can also use the Fibonacci level as a trigger and open a position later, after other conditions, such as a candlestick pattern, a breakout level, or any other confirmation that the price is observing the Fibonacci level, are met.
No. 6: How correctly to display the Fibonacci retracement levels?
It is extremely important to place the Fibonacci retracement levels in the correct upper and lower levels. In any case - currency traders should place the Fibonacci levels correctly: from the bottom up in the uptrend and from top to bottom in the downward trend. Movement from top to bottom can also be called "fluctuation from the maximum to the minimum." Here are a few key elements that need to be considered:
a) Use the highs and lows on your timeframe - to properly place the Fibonacci levels, use the real highs and lows of fluctuations and price movements;
b) Use fractals - they will help you determine the highs and lows;
c) Use Elliott Waves - when placing Fibonacci levels, make sure that you start at the bottom of wave 1 and end at the top of wave 5, otherwise the Fibonacci levels will be untenable (and you do not correctly define the entry point to the market);
d) Use a good oscillator - check if the signal line has crossed the zero level, and wait until it returns to this zero level. This will confirm the directional movement in the market or the fluctuations from the maximum to the minimum.
No. 7: How to determine that it's time to place Fibonacci levels?
It is important to understand that it is not worthwhile to place new Fibonacci levels on a new price fluctuation from the maximum to the minimum, until the profit target is achieved. Why? The reason is simple: only when the profit target was broken, the currency pair actually confirms the trend. If the currency pair balances between the high and the low, then it is actually in the range, and new Fibo levels should be placed only after the trend again appears on the market. The most important levels for placing a profit target are -0.618 or -0.272 in the case of 78.6% and 88.6% Fibonacci retracement levels.
No. 8: Applying Fibonacci Levels in Accordance with Other Instruments Match matching is the key.
By matching, I mean looking for several reasons for opening a position.
1) The Fibonacci goal coincides with the Fibonacci retracement level When the Fibonacci target coincides with the Fibonacci retracement level, then the probability that the price will react to it is significantly increased;
2) Price movement and important Fibonacci levels Waiting for confirmation of price reaction to the Fibonacci level is an excellent method to reduce the risk and make sure that your Fibonacci levels are placed correctly;
3) Fibonacci levels and key levels on the chart (such as support and resistance levels on the daily and weekly charts) This is another great way to combine various tools of technical analysis in the Forex market;
4) Fibonacci levels and trend lines and / or moving averages. Last but not least, it goes without saying that using moving averages and / or trend lines with Fibonacci levels will naturally also be a good signal.
No. 9: Fibonacci Levels with Graphic Patterns and Fibonacci Time Zones
Fibonacci levels play an integral role in graphic patterns.Fibonacci time zones show what the probable duration of price fluctuations is from the maximum to the minimum, before the next fluctuation starts from the maximum to the minimum. They are determined by measuring the time interval from the maximum to the minimum with subsequent placement of the levels 38.2%, 61.8% and 100% of this time interval forward. The next swing from high to low has a higher chance of ending at these Fibonacci levels.
No. 10: Do Fibonacci levels work on different timeframes?
Fibonacci correction levels are of greater importance and importance when used at higher TF. Nevertheless, they tend to work well on all timeframes. Traders can use this tool on several time frames simultaneously. In one case, on a higher timeframe, for example, on the daily chart, Fibonacci levels can act as a potential reversal spot for the continuation of the trend. At the same time, on smaller timeframes, a trader can use Fibonacci levels to enter the market on a rollback. In the first case, the Fibonacci tool is used as a potential trigger, and in the second for the actual entry.