How to use Fibonacci in forex trading?
How to use Fibonacci in forex trading?
Are Fibonacci tools reliable for predicting price movements, or is it just a coincidence?
Re: How to use Fibonacci in forex trading?
In forex, the Fibonacci tool is a technical analysis tool that is used by traders to find the key price levels or strong price levels in forex trading by using the Fibonacci sequence. Fibonacci sequence is a natural pattern found in nature. Fibonacci numbers are found in nature like the golden ratio that is why this tool is used in forex trading to predict the future price movements.
What is the Fibonacci Sequence?
Fibonacci sequence is a list of numbers which are formed by the sum of the two numbers before it. For example if we look at the fibonacci sequence it goes like 0,1,1,2,3,5,8,13,21 and so on. These are natural numbers and are found in nature all over like the petals of a flower or the number of fingers on our hand. The unique number in this sequence is the 1.618 which is also known as the golden ratio number and is formed when you divide any number in this sequence by the previous number. This is the reason the Fibonacci tool is used to predict the price movements.
How Fibonacci Tool Works in Forex?
When we use the fibonacci tool in technical analysis we are able to predict where the price will retrace back to after making a big move. For example if the price moves up by 100 pips it might pull back to the fibonacci level of 61.8. 61.8% is a golden percentage so most of the time the price will bounce from this level and then will continue the next move. This is not always this exact but it can be commonly seen in nature.
How to Draw Fibonacci Retracement Levels
It is very easy to draw the Fibonacci Retracement levels. Just select the fibonacci tool and drag it from the low point to the high point of the wave if the trend is in upward direction and if the trend is in downward direction just drag the tool from the high point to the low point of the wave.
Fibonacci Extension in Forex
The Fibonacci Extension levels are used to predict how far the price will move after the retracement. The 1.618 and 1.272 are considered as the strong extension levels. To draw Fibonacci extensions just select the Fibonacci tool and drag it from the high to the low point of a retracement for a downtrend or from the low to the high point for an uptrend.
What is the Fibonacci Sequence?
Fibonacci sequence is a list of numbers which are formed by the sum of the two numbers before it. For example if we look at the fibonacci sequence it goes like 0,1,1,2,3,5,8,13,21 and so on. These are natural numbers and are found in nature all over like the petals of a flower or the number of fingers on our hand. The unique number in this sequence is the 1.618 which is also known as the golden ratio number and is formed when you divide any number in this sequence by the previous number. This is the reason the Fibonacci tool is used to predict the price movements.
When we use the fibonacci tool in technical analysis we are able to predict where the price will retrace back to after making a big move. For example if the price moves up by 100 pips it might pull back to the fibonacci level of 61.8. 61.8% is a golden percentage so most of the time the price will bounce from this level and then will continue the next move. This is not always this exact but it can be commonly seen in nature.
How to Draw Fibonacci Retracement Levels
It is very easy to draw the Fibonacci Retracement levels. Just select the fibonacci tool and drag it from the low point to the high point of the wave if the trend is in upward direction and if the trend is in downward direction just drag the tool from the high point to the low point of the wave.
The Fibonacci Extension levels are used to predict how far the price will move after the retracement. The 1.618 and 1.272 are considered as the strong extension levels. To draw Fibonacci extensions just select the Fibonacci tool and drag it from the high to the low point of a retracement for a downtrend or from the low to the high point for an uptrend.