A Variety of Fibonacci Tools for Building a Trading System
June 17, 2019
platforms offered by any Forex
broker in the 21st-century have many Fibonacci tools to
analyze the market. The tools vary based
on the trading strategy
and the Fibonacci method
you ask a trader to say something about the
Fibonacci ratios quickly, most likely the answer relates around the
61.8% or other retracement levels. While they are popular among retail traders
due to the use in the Elliott and Gartley theories, to name just two, there are
other Fibonacci tools traders can use in technical analysis of the currency
MetaTrader4, the most popular trading platform among retail Forex traders, but also
other trading platforms, offer the following Fibonacci tools to use:
- We already mentioned the Fibonacci
Retracement tool. Very popular in Forex trading, traders use it by dragging it from the top to the
bottom of a market swing to find the 23.6%, 38.2%, 50%, and 61.8%. The bigger the timeframe, the stronger the support
provided. In a bearish market swing, traders use the ratios to sell the spikes
into the Fibonacci ratios.
- The Fibonacci Expansion tool is widely used in Forex trading, especially in the Elliott Waves
Theory. When the market travels in the extended wave, traders look for 161.8%
level, which is the minimum distance for the extended wave to travel. Also, the 138.2% and 261.8% are essential levels: the first one tells what type
of the flat pattern the market forms, and the second one shows if a triangle is
irregular or just a classic horizontal triangle
- Based on the same ratios, the Fibonacci
Fan is a series of lines that have the angles between them respecting the Fibonacci
ratios. They provide tremendous dynamic
support and resistance levels.
- The arcs show pretty much the same thing (dynamic support and resistance that follows the arc of
a circle, and the distance between them is given by various Fibonacci ratios
- An incredible trading tool, the Time Zones
tool puts the Fibonacci ratios in active
relation with the time it took a pattern to form. Extremely popular in the Forex market due to the
ability to forecast future market turns
by using a pattern recognition approach, the Fibonacci Time Zones tool project
the time on the right side of a chart by measuring the time of a pattern.
now, I’m sure you’ve understood how vital
the Fibonacci tools are for the Forex trader. In technical analysis, they play a tremendous role in bringing essential concepts and trading theories together.
have a vast application also when trading from a pure price action point of
view. By merely measuring tops and
bottoms and looking for the 61.8% or other Fibonacci ratios, traders have an
educated guess where the market might turn and prepare accordingly.
the most critical use of the Fibonacci
ratios is in Elliott Waves Theory. Effectively, it connects the logical process
in such a way that trader can forecast future prices merely using the most important Fibonacci levels.