Forex. Fibonacci levels
Recently, trading on the Forex market has become a very popular activity. In the pursuit of quick profits, thousands of people are trying their hand at currency speculation, hundreds of companies offer their trading education services, promising that after a month’s exchange rate you will learn to trade steadily and profitably. There is some truth in this, anyone can be taught to follow a trading strategy. But the ability to trade is a fundamental knowledge of the market and fundamental theories of course forecasting and market functioning. There are several such theories, and each of them requires a long and detailed study. In this article we will touch upon only one of them – Fibonacci numbers and their use in Forex trading
Fibonacci numbers are a sequence of numbers proposed by the Italian mathematician Fibonacci. Each subsequent number in the row is equal to the sum of the two previous numbers (1,1, 2, 3, 5, 8, 13, 21, etc.), the row is infinite. Such a numerical sequence has found practical application in many areas of human activity, from science to art, and it has not passed the financial markets. There are many possible uses for these numbers, but the most popular are the Fibonacci levels, where the Fibonacci numbers act as a kind of level ratio. In practice, there has been a lot of evidence that the Fibonacci numbers are quite accurate in line with the psychology of the market. Let’s consider the principle of applying Fibonacci levels in trade.
Any MetaTrader 4 terminal has a built-in Fibonacci line tool, which has two main functions: calculating the possible length of the correction and setting the targets for price movement based on the already formed waves. In the first case, the instrument is “pulled” by the wave from its beginning to its expected end. Thus, we get several levels: 23, 38, 50, 61 and others. These are possible levels of correction of the formed wave, each of these levels is a kind of support or resistance, with all the same properties and trading principles. In the second case – setting the targets for movement, the instrument “Fibonacci line” is stretched from the end of the assumed wave to its beginning. So we get potential targets for the next impulse wave. There are several goals, but depending on what the trend wave is expected on the account, we can assume what level it will reach. The longest is the third wave of the trend, and it is usually determined by this method. However, such levels are not the only way to apply this numerical sequence.
Other Fibonacci instruments include Fibonacci time zones, Fibonacci fans and arcs, expansion and even some others. All of them have their own principles of construction and application in trading, we will not consider them, but a competent trader should at least have an idea of how they all function
Like most Forex instruments and theories, Fibonacci instruments are rarely used separately from other indicators because they have their own potential disadvantages. So, it is never clear to what level the correction or impulse movement will go to, so it is necessary to “work on” each level. Of course, this drawback is often compensated by the experience and knowledge of the currency pair, its movement patterns, but not to the end. For the purpose of its “compensation” it is also possible to enter into the trading system any oscillator, and on its signals together with signals of levels to make the decision on entering or leaving the market
The main drawback of technical analysis is that it, in most cases, gives delayed signals to enter the market, as most indicators are “drawn” on the basis of the price chart and only follow it. Trading on the basis of Fibonacci instruments is devoid of this disadvantage, as it gives leading signals, which are based not so much on price fluctuations as on the psychology of the market, on the ratios of different waves found experimentally. The whole set of indicators in the Forex market is based on the principles of only a few basic theories, each of which has its own principles of forming trading signals. To make your trading system’s signal as accurate as possible, it is necessary to use indicators that work on the basis of different independent principles. Therefore, if you still do not use Fibonacci instruments in your trading, it is time to include them in your trading strategy. Have a successful trade!