Summary: Fibonacci

12
Dec

Forex Trading Floors “How to Trade” summarises what has been covered over the last few weeks of using Fibonacci.

The 3 most important Fib Levels:

1. 38.2%
2. 50.0%
3. 61.8%

 

Fibonacci Extension Targets by Retracement Level

Retracement

Extension Target

38.2%

161.8%

50.0%

138.2% to 161.8%

61.8%

121.4% to 138.2%

78.6%

100.0% to 121.4%

 

The key Fibonacci retracement levels to keep an eye on are the 23.6%, 38.2%, 50.0%, 61.8%, and 76.4%. The ones that seem to hold the most weight are the 38.2%, 50.0%, and 61.8% levels. These are normally included in the default settings of any Fibonacci retracement software.

Traders use the Fibonacci retracement levels as potential support and resistance. Since plenty of traders watch these same levels and place buy and sell orders on them to enter trades or place stops, the support and resistance levels may become a self-fulfilling prophecy.

They key Fibonacci extension levels are the 38.2%, 50.0%, 61.8%, 100%, 138.2% and 161.8%.

Traders use the Fibonacci extension levels as potential support and resistance areas to set profit targets. Again, since so many traders are watching these levels and placing buy and sell orders to take profits, this tool tends to work due self-fulfilling expectations.

In order to apply Fibonacci levels to your charts, you'll need to identify Swing High and Swing Low points.

A Swing High is a candlestick with at least two lower highs on both the left and right of itself.

A Swing Low is a candlestick with at least two higher lows on both the left and right of itself.

Because many traders use the Fibonacci tool, those levels tend to become self-fulfilling support and resistance levels or areas of interest.

When using the Fibonacci tool, probability of success could increase when using the Fib tool with other support and resistance levels, trend lines, and candlestick patterns for spotting entry and stop loss points.

So which way is better?

The truth is, just like in combining the Fibonacci retracement tool with support and resistance, trend lines, and candlesticks to find a better entry, it would be best to use your knowledge of these tools to analyse the current environment to help you pick a good stop loss point.

As much as possible, you shouldn't rely solely on Fib levels as support and resistance points as the basis for stop loss placement.

Remember, stop loss placement isn't a sure thing, but if you can tilt the odds in your favour by combining multiple tools, it could help give you a better exit point, more room for your trade to breathe, and possibly a better reward-to-Risk ratio.

Forex Trading Floors offers one-to-one coaching with our trader coach, either online or at Forex Trading Floors.

If you are interested in coaching or arranging a visit to the trading floors, contact us on 01277 232223 or email info@forextradingfloors.co.uk

 

 

 

 

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