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Fibonacci Trading:
Fibonacci trading analysis leaped into the technical mainstream late in the 1990s. Futures traders had been quietly using this charting tool for several decades when Net-based, real-time software ported it to the equity markets. Its popularity exploded as at-home traders experimented with the arcane math and discovered its many virtues.
Fibonacci's commonly observed market retracement levels of 38%, 50% and 62% are derived from ratios of this logical number series. Traders apply Fibonacci levels to their charts between the start and end points of a notable trend and then examine the price patterns. In a nutshell, they look for bounces and reversals when a “Fib number” gets hit during a pullback.
Forex Strategies By Using Fibonacci Trading Levels:
Each trader's Fibonacci Trading strategy will be different, so as an investor you need to consider how each of the strategies below might fit into your overall angle on the market. Not every Fibonacci trader uses the options below, and it is alright if none of them align with your strategy. Strategies that utilize Fibonacci Trading retracements include the following:
You can buy near the 38.2 percent Fibonacci retracement level with a stop-loss order placed a little below the 50 percent level.
You can buy near the 50 percent level with a stop-loss order placed a little below the 61.8 percent level.
When entering a sell position near the top of the large move, you can use the Fibonacci Trading retracement levels as profit-taking targets.
If the market retraces close to one of the Fibonacci Trading levels and then resumes its prior move, you can use the higher Fibonacci Trading levels of 161.8 percent and 261.8 percent to identify possible future support and resistance levels if the market moves beyond the high/low that was reached prior to the retracement.
Almost all traders have a trading style or set of Forex strategies they utilize in order to maximize profit potential and keep their emotions in check. The Fibonacci trading strategy utilizes hard data and if a trader adheres to their strategy, there should be minimal emotional interference.
The Fibonacci trading strategies discussed above can be applied to both long-term and short-term trades, anything from mere minutes to years. Due to the nature of currency changes, however, most trades are executed on a shorter time horizon.
