Effective Trading System Based on Fibonacci Levels
June 17, 2019
Forex trading system
that works is one that combines technical and fundamental analysis. However, it
is not enough to continually make a
profit, if there is no money management plan too.
main use of a Fibonacci method for trading is to find out
support and resistance levels. Support and resistance in Forex come in two shapes:
- Horizontal or classic levels
- These are levels obtained by measuring the
previous move and dragging a Fibonacci Retracement tool from top to bottom (in
a bearish move) to find out resistance at Fibonacci levels or from bottom to top (in a bullish move) to find out
support at Fibonacci levels. These are horizontal
areas (not lines!) where the price finds
it challenging to get through.
- Dynamic levels
- A dynamic support or resistance level is
one the follows the price closely. It
rises or falls with the price action and have great
use in Forex trading.
Fibonacci Levels to Trade Horizontal Support and
Trading the currency market is a speculation.
Traders use all kinds of trading techniques to find levels with a great probability of a bounce.
ratios are such tools. In the case of horizontal support and resistance, the
bigger the timeframe is, the stronger the levels.
This is the EURUSD weekly
timeframe. It’s quite a big timeframe, so any support or resistance area
should be treated with respect.
way to find out future support and resistance is to follow these steps:
- After a bearish market move (like the one
we see above) use a Fibonacci Retracement tool and drag it from top to bottom
- Identify the 38.2%, 50% and, most
important, the 61.8% levels
- Mark them as areas where the price might
- Exit/enter the market at the Fibonacci
Fibonacci Levels to Trade Dynamic Support and Resistance
mentioned earlier, dynamic support and resistance levels follow the price
closely. The Forex market
may still make new lows (in a bearish trend) or new highs (in a bullish trend),
but the dynamic levels will keep following the price action.
easiest way to understand dynamic levels is to use the same chart offered by
the Forex broker
but this time to use a different Fibonacci tool: the Fibonacci Fan.
dragging the tool from top to bottom, the
resulting Fibonacci ratios represent dynamic levels. They act as resistance
that turns into support or support that turns into resistance.
again, dynamic levels are much more powerful
than horizontal one, for the simple reason that they follow the price. The
market may still trend lower and make new lower lows (assuming a bearish trend)
but won’t turn until it manages to break
the resistance given by the 38.2%, 50% or 61.8% ratios.
that uses Fibonacci levels depends very much on how traders drag the tools.
Using the tops and bottoms is the preferred method, but not the only one.
Integration with other trading theories, instead, makes the Fibonacci ratios much
more interesting to use.