If we talk about trading in these emerging markets which have become most trusted marketplaces , then the idea of indicators pops up. The use of indicators to be a perfect trader is being on since last several decades in online trading. Before the online trading there was also an idea of indicators in offline trading. This strategy was very helpful for the traders. By times market moved towards online trading to make it better.
These all things were necessary to describe because this was actual base of the development of Fibonacci retracement indicator. Hundred years ago it was mentioned by professional traders that there is a clear ratio in market trends.( This will be explained later ). This idea came to their minds by the natural phenomena that their is aspect ratio between all the things.
By these ideas Leonardo Fibonacci developed this retracement indicator.
In this topic we will uncover all things related this indicator. The main things we will describe are:
- The basic ideas about this.
- The method of using this.
- The major advantages and also disadvantages of using this indicator.
- Fibonacci retracement in trading.
- Fibonacci ratios.
- The supporting and resisting factors.
- The method of plotting it to chart.
Fibonacci retracement indicator:
Fibonacci retracement indicator uses the levels developed by Fibonacci to determine the price variations in market. It determines the uptrend and down trends. This indicator depends upon the reversal in which the price again show variation from the particular trend.
This Fibonacci retracements depends upon the main number developed by Fibonacci. These are expressed in percentage by sequence. There is a formula maintained by developer to keep sequence. Every number of sequence is sum of last 2 numbers.
For example if the first two numbers are 0 and 1 then the next number of such sequence is 1 which is calculated as 0+1= 1
Fibonacci retracement indicator is one of oldest developed indicator and helping traders a lot. It is a technical indicator being used by such type of traders.
The Fibonacci retracement is developed as :
Firstly take two extreme points on the chart.
Then divide the vertical distance by the particular Fibonacci ratios.
Fibonacci retracement indicator is helping a lot to find out the support and resistance levels. By having basic overview of these points a trader can successfully describe target prices. These have proved best in conjunction between the other proper used indicators.
Fibonacci ratios which are used in this indicator are given as:
23.6%, 38.2%, 50%, 61.8%, and 100%.
What are the advantages and disadvantages of using this indicator?
Benefits of using Fibonacci retracement indicator:
- It is very easy to use if we talk about setting up a chart.
- The values obtained from it are more static as compared to other trading indicators.
- it is acceptable in almost all kinds of price assets.
- By using the idea of support and resistance level we can figure out the real trend occurring in market.
- Fibonacci retracement indicator can also provide us possible buying and selling points.
Disadvantages of using Fibonacci retracement indicator:
As there are many advantages of using this indicator. We should keep it in mind that at the same time this indicator has some disadvantages. It is necessary to overcome these problems. The some important disadvantages are mentioned below:
- The supporting and resisting levels of Fibonacci retracement indicator are subjective.
- More knowledge is required while we distinguish between the temporary or expansion level retracement. Although we discussed above that it is very easy to be used , being a technical indicator. But we should be very careful while trading.
- As we said it is most common indicator in the traders so they can get the same price action trend. So it becomes tough to trade successfully via this indicator.
By covering these main points a trader can successfully trade by using this.
Explanation of its support and resistance levels:
Fibonacci support and resistance levels are very helpful in trading via this because they provide complete overview to that particular price trend. We can get a lot of information from these. Let’s try to explain these levels briefly:
These are the levels at which trders may guess the retracement.
Two main points to understand the actual actions taking by these levels are indicated by these levels are given below
- When this reversal reaches at the support level during trend moving up then there are more chances to live good time at this everlasting position.
- When this reversal reaches resistance level during trend moving downward then we may to leave it or to wait.
These main points tells us about when to buy or sell price. For example we should wait for trend moving up for buying. When trend moves up it indicates us to buy particular price. While it clears that when trend loses to downward then it is right to sell that price.
From all discussion it is cleared that these levels can be helpful for us in trading. We have discussed that it repeats the trend after particular Fibonacci retracement ratios. So it can be thought that the prices will repeat their old pattern.
By this overview it makes us to understand the enter and exist time from the market. We should also keep in mind that there are not 100 % chances that retracement will indicate the old trend of prices. Then it is not good to trade. It is said that it is best to use Fibonacci retracement indicator should be composed by other indicators to make it useful.
What is perfect method of plotting it to chart?
In our chart we should mark different levels by different colors. Unlike other it’s setup process is straight line process.
While plotting it to chart a line should be drawn from lowest level to highest level in case of trend moving up. But in case of trend moving down the line should be drawn from highest level to lowest level. This is often presented by tool.
According to Fibonacci the market price never jumps from highest level to lowest level nor vice – versa. There is proper ratio of its variation. It is gradually process. The prices show retracements.
How it predicts the market price?
This indicator provides information about the market trend of prices. The behavior of prices is re traced. We can say it repeats old behavior which is useful to predict future market price trend.
Fibonacci retracement as trading strategy:
When we talk about trading strategy then this indicator is mostly used by traders. It is very helpful in indicating the market behavior. For this it is important to understand the best time to enter the market and the time which is better to leave the market.
It also provides the buy and sell signals by describing the uptrend and down trend of market future prices.
It is preferred in market by some traders. We should understand the market behavior. We have to select the strong assets. This can identify the buy sale signals also.
Now it’s time to conclude this topic. I hope you all got idea about the Fibonacci retracement indicator. In this topic I tried my best to uncover all the things about this indicator.
I explained that what is Fibonacci retracement indicator and how it is helpful in trading. Moreover I discussed the proper way of plotting chart then I explained the levels in this indicators. I also described the advantages and disadvantages of using this. Now if you want further details about forex trading and indicators then scroll our website.
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Uses of Fibonacci retracement indicator:
Currency pairs: All
EURUSD, GBPUSD, USDCHF, USDJPY, AUDUSD, NZDUSD, USDCAD,EURJPY, EURCHF, EURGBP, EURAUD, EURNZD, EURCAD,GBPJPY, GBPCHF, GBPAUD, GBPNZD, GBPCAD AUDCAD, AUDNZD, AUDJPY, CHFJPY, NZDJPY, CADJPY, CADCHF, NZDCHF
Trading Time: 24 Hours
Timeframe: Fibonacci retracement indicator
Recommended broker: All trusted brokers
Remember, Before use Fibonacci retracement indicator you can test on Demo account. When you will expert then you will use in Real account of trading.