Fibonacci Levels – Methods to Use in Forex Trading
June 17, 2019
analysis would be much poorer if it
weren’t for the Fibonacci numbers. More precisely, the Fibonacci ratios brought
together new trading concepts, strategies, and even theories.
traders use the Fibonacci method for trading and built a Forex trading system directly buying dips into Fibonacci levels or
selling spikes in important ratios.
name comes from an Italian mathematician that lived in the late 1100s. He traveled
into the Arabic world and found that the way of doing complex math calculations
was much more comfortable using Arab
numbers. As it turned out, he introduced them in old Europe proving that the
roman numbers were outdated.
remained famous for the Fibonacci series of numbers that says that each number in the series is a sum of the
previous two. The beauty of it is that the ratios these numbers appear,
called the Fibonacci ratios, apply to various concepts surrounding our
day-to-day living. For instance, the house of the snail, follows a Fibonacci ratio.
How to Use Fibonacci Ratios in Trading
traders find great help in Fibonacci ratios. And, not only the currency traders, but all traders using technical
widely used ratios are the retracement ones: 23.6%, 38.2%, 61.8%. Add to them
the 50% level and put them on a relevant timeframe (bigger than the four-hour timeframe)
and you’ll see the market reacting almost like magic on the levels, forming
strong support or resistance areas.
of all Fibonacci ratios, one stands as the magical level every trader is aware
off: the 61.8% ratio. Also known as the golden
ratio, it was used, for instance, to bring together concepts part of famous trading theories like the Elliott Waves
the USDCHF daily chart from above? The price broke higher in an aggressive
bullish trend, and then a correction began.
traders draw the Fibonacci levels to find out the 61.8% in anticipation of a
bounce. However, Forex
trading is not an exact science, meaning that traders do not wait for
levels to be reached within the last pip.
Instead, it is more about an area where the market is supposed to react, just
like it did in this case.
Forex market has
various applications for the Fibonacci ratios. For both retracement and
expansion levels, the ratios sit at the
core of a trading strategy
- Buys the 2nd wave retracement
into the 50%-61.8% area when trading a bullish impulsive wave with the Elliott
- Finds the minimum extended level in the
Elliott Waves Theory when using the 161.8% expansion
- Sets the appropriate target using the
Gartley trading method
are only a few ways to trade with the Fibonacci levels, and any Forex broker makes its
clients aware of the power of the Fibonacci ratios.
analysis would be much poorer without the
Fibonacci levels. For instance, the Elliott Waves Theory, one of the most powerful theories that exist, would not make sense without Fibonacci’s integration that
helps to put corrective and impulsive