Fibonacci is a tool often used by those who know a little and given that forex is a very vast and complicated, I do not discuss in depth but only the part that interests us.
The name Fibonacci is due to the famous Italian mathematician who discovered the series of numbers that were repeated frequently in various fields.
Price Retracement Levels
0236, 0382, 0500, 0618, 0764
Price Extension Levels
0, 0,382, 0,618, 1,000, 1,382, 1,618
Different brokers but not all include this powerful tool now will be analyzed, if your broker does not have it I suggest you open a demo account on meta trader.
The first set of numbers is used as price retracement (when the price goes up and then down a bit, or vice versa) and is useful for identifying support and resistance.
The reason it works is that all the fibonacci and then use large volumes of money are exchanged in accordance with his instructions.
The second set of numbers is used as a possible levels reached in practice used to determine where to put any target.
To be able to use fibonacci in their charts must be able to find charts swing (swings), high (high) and swing lows (low).
A Swing High is a high bar is flanked on the right and left two bars and a lower swing low is a low bar flanked by two bars higher.
Fibonacci Retracement LEVELS
In a positive trend, the idea is to go long on a retracement to a higher level of support, to do this you need to click on a significant swing low and hold until the most recent swing high, this will show any retracement level showing both the ratio and corresponding price.
Here you can watch a video to better understand how it works:
Let us now an example on a graph:
Set hourly chart of USD / JPY. Click on a swing low at 110.78 on 07/12/05 and place we hold up to a swing high at 112.27 poato of 07/13/05.
You can see the levels identified by the program: retracement levels were 111.92 (0.236) 111.70 (0382), 111.52 (0500), and 111.35 (0618).
Now the expectation is that USD / JPY retraces from these levels, will find support at a Fibonacci levels because all the people have placed orders at these levels just as the market pulls back.
Now let’s look at what happened next: the market goes down to the 0236 level and continues to fall the day after reaching a high level with 0382 but without going deeper. Later the same day the market resumed its upward trend. Buy the 0382 level would be a good short term trade.
Now let us analyze the retracement level during a downtrend.
An hourly chart of EUR / USD. As you can see we have found our swing high at 1.3278 on 02/28/05 and our Swing Low at 1.3169 a few hours later.
The retracement levels were: 1.3236 (0618), 1.3224 (0500), 1.3211 (0382), and 1.3195 (.236).
The expectation is that if a downtrend retraces from this point will find strength in one of the Fibonacci levels because people will place orders for sale in the points before the market started running again.
Let’s see what happened next: the market exceeds the 0382
and quickly too ill second level, going to the third arrrestare 0500. Queelo would be a good place to place an order for sale.
We proceed with another example. An hourly chart of GBP / USD.
We find seing a high of 1.7438 on 07/26/05 and Swing Low of 1.7336 on the following day. Our retracement levels are then: 1.7399 (0618), 1.7387 (0500), 1.7375 (0382), and 1.7360 (0.236). Looking at the chart it seems that the market has tried to break the 0,500 level on several occasions, but has always failed. Place a sell order at 0500
might be a good trade?
Doing so would have meant losing a lot of money! Let’s see what happens. Swing low seems to be the lowest point of this downtrend as the market begins to rise even above the swing high chosen by us.
From this example we can see how the market tends to find temporary support during an uptrend or resistance points in a downward trend in their levels of fibonacci retracement.
We have no hand in anything that makes us understand at what level we will support. The first level seems to be a resistance / support very low levels while others come with the same frequency and it is said that the market will resume once the trend reached a level detertminato, it may happen that the price exceeds the swing high or low swing set.
Place the stop loss is not easy. The best thing probably is to place the stop loss in a positive trend during swung low and swing high during the negative trend. This requires a lto level of risk in proportion to the profit potential of trade.
How to control the risk will be explained in the money management.
Another problem is to choose which swing high swing low and are best suited for fibonacci, people look at charts in different ways and opinions may differ. There is no right way, my advice is to not only look at the charts too short (5 minute walk a half an hour) but to increase the scale, I think daily would be a good time.
FIBONACCI EXTENSION PRICE LEVELS
While the first Fibonacci series helped us to identify support and resistance levels of the second set is used to determine which target to choose.
Suppose we have a positive trend, we can determine which target to reach using three significant points of the graph: a point of Swing Low, Swing High and one of the swing low of the retracement point. Here’s a video that will help you understand:
Now suppose you have a chart with one hour period on a cross USD / CHF, we draw the Fibonacci extension levels by clicking on the swing low of 1.2447 to 08.14.2005 and holding the mouse down to the swing high of 1.2593 to 8.15 / 05 and then going down again on the swing low of the retracement at 1.2541 instead of 08/15/2005. You create the following extension levels: 1.2597 (0382), 1.2631 (0618), 1.2687 (1000), 1.2743 (1382), 1.2760 (1500), and 1.2777 (1618).
Now look what happens:
the market runs up to the 0500 level, down to the swing low of the retracement then returns to 0500, again down slightly, running at up to 0618 falls on the 0382 level which acts as a support, then rises up to 1382 where he consolidated a bit and finally reaches 1,500.
From these examples you can see that the market often stops in the Fibonacci extension levels.
As in the retracement even here there are the same problems: you can not know what level will the resistance.
0500 is usually a good level to set the target and then open an opposite position to the retracement.
Another problem is to choose the swing low from which to start the expansion of Fibonacci, a method such as that used in the example is to do it since the last swing low while another method is to place it on the lowest swing taken low after 30 bars.
Let us now turn to the example in a downtrend …
In the hourly chart of EUR / USD we have drawn the Fibonacci extension levels:
1.2041 (0382), 1.2027 (0500), 1.2013 (0618), 1.1969 (1000), 1.1925 (1382), 1.1911 (1500), and 1.1897 (1618).
Vedimao what happens after the retracement:
-The market drops to 0382 level that becomes the overwhelming support;
-The market remains high between the swing and retracement of the 0382 level;
The break-market level and about 0.382 to 0.500
-Finally, it must break 0.50 to 1.00
Using Fibonacci levels just will not let you get rich, however, are very useful if you use a trading technique.
Every successful trader knows how to integrate the indicators and make the best use.
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