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By Sam Andrews
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20/05/2022

Fibonacci Trading Strategy Levels Indicators

While some traders may choose to build a whole strategy around the Fibo numbers, many of them use it as a supporting tool. Throughout nature, we see a repeating pattern, based on a series of numbers which Leonardo Pisano Bogollo, an Italian mathematician, introduced to the West. The number series, and the Golden Ratio, are found in galaxy formations, plant growth, and man-made structures.

• As well as being a trader, Milan writes daily analysis for the Axi community, using his extensive knowledge of financial markets to provide unique insights and commentary.
• Thus, levels that lie within this range (61.8, 38.3, etc.) become benchmarks for possible reversals and levels that come after 100 (161.8, 261.8, etc.) become targets for trend continuation.
• No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
• Fibonacci retracements are horizontal lines that represent the application of the Fibonacci ratio to a forex pair’s trading range.
• The Fibonacci grid is stretched along the last apparent trend wave.

Keep in mind that the likelihood of a reversal increases if there is a confluence of technical signals when price reaches a Fibonacci level. Other popular technical indicators that are used in conjunction with Fibonacci levels include candlestick patterns, trendlines, volume, momentum oscillators and moving averages. A greater number of confirming indicators in play equates to a more robust reversal signal. Use the Fibonacci retracement tool on all time frames, from minute charts up to monthly charts.

Drawing Fibonacci Retracement Levels In an Uptrend

This situation leads us to observe that the entry setup could be improved through the use of an entry filter to reduce the false entry risk. Forex.Academy is a free news and research website, offering educational information to those who are interested in Forex https://xcritical.com/ trading. Forex Academy is among the trading communities’ largest online sources for news, reviews, and analysis on currencies, cryptocurrencies, commodities, metals, and indices. The idea is to measure the time taken for the first leg of the triangle.

Fibonacci extensions are levels that are drawn beyond the 100% level and these levels are often used by traders to identify potentially good areas for exiting a trade and taking profits. They can also be good areas to watch for reversals or pullbacks. It’s important to note that Fibonacci extensions are simply possible areas of interest. For example, price may move just slightly above the 161.8% level before reversing, or it could stop just shy of that level and revese. The levels are also used across different markets such as Forex, Stocks, Indices and Commodities. So far, you have learnt that Fibonacci retracement levels are used to find support and resistance levels to enter a trade in the direction of the preceding trend.

Recognizing the Risk of the 61.8% Level as a Unique Criterion

But you can calculate the position by choosing two extreme points. After that, you are required to draw a line that joins these two points. Justin is an active trader with more than 20-years of industry experience.

Also as the trades have not been executed in a live market, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated Trading programmes in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. The performance of traders of the AXIA Trading Team featured in videos, blogs or any live broadcasts is not typical. Attending and completing an AXIA Training Programme will not guarantee any trading success.

What is the Fibonacci sequence?

To depend entirely on support and resistance levels would be a mistake, and it is a common mistake made by novice traders. As a scalping strategy depends on placing multiple trades a day, extracting lots of small profits, one big losing position could exceed profits on existing trades. To mitigate risk of exposure, tight stop loss orders should be placed just above or below the support or resistance level. When applied to trading charts, Fibonacci levels indicate how much of an asset’s value has been traded during a specific timeframe and can be used as major turning points in trend direction.

If the market is in an uptrend, you’ll want to buy a few points above B. Ezekiel is considered as one of the top forex traders around who actually care about giving back to the community. He makes six figures a trade in his own trading and behind the scenes, Ezekiel trains the traders who work in banks, fund management companies and prop trading firms. The average risk reward ratio of this strategy for EURUSD is 1.58, AAPL is 1.82 and BTC is 2.47.

How I Use Fibonacci Retracement Levels

After plotting the line, you can see that the price retracts at some Fibonacci levels , which serve as support, and then reverses in the same direction as the trend. Fibonacci trading can be a profitable way of entering and exiting trading positions, but you should be aware that not all retracements will reverse toward the initial trend. This means you cannot simply assume a profitable signal every time a price reaches a certain level. Markets rarely move in a straight line, and often experience temporary dips – known as pullbacks or retracements. Fibonacci retracements are used by traders to identify the degree to which a market will move against its current trend. Here, the percentage indicates how much of a prior move the price has retraced.

This means that the 0% should be plotted onto the swing low, and the 100% to be on the swing high. Since the golden zone provides a strong level of resistance, we will be utilising that as an entry. For the entry, we will be looking for a nice bounce in the golden zone. Specifically, we will be looking to enter on the fibonacci indicator high of a strong trending bar in the golden zone. For example, if it is an uptrend, we will enter on the high of a strong bullish bar that is rejecting off the golden zone. However, one must not entirely depend on this data because it does not tell about the exact turning point of an asset’s price in the market.

More forex trading basics

This is because if the price retraced from point A all the way back to point X it would be a 100% retracement downtrend. These Fibonacci levels provide areas of resistance where the market could correct lower and continue the trend down. In the example above, price did indeed find resistance at the 38.2% Fibonacci level and then correct lower. Typically, traders would look at other technical tools to further confirm the possibility of a correction lower. This will be evident in the next section as we go through a Forex Fibonacci trading strategy.