Fibonacci Trading

Leonardo Fibonacci is a famous Italian mathematician, also known as a super duper uber ultra geek. Now you know where the Fibonacci came from.

You need to learn about Fibonacci ratios, because  most traders use it a lot. Fibonacci is a large topic and there are many other Fibonacci studies with weird names, however, we are  going to stick with retracement and extension.

As potential support and resistance areas, traders use the Fibonacci retracement levels. Since so many traders observe these same levels and position buy and sell orders on them to enter trades or position a stops, the support and resistance levels incline to become a self rewarding prediction.

For profit taking levels, Traders use the Fibonacci extension levels. Once more, since so many traders are observing these levels to position buy and sell orders to take profits, this instrument inclines to work more frequently than not due to self-satisfying anticipations.

Most charting software consists of both Fibonacci retracement levels and extension level tools. In order to smear Fibonacci levels to your charts, you will need to identify Swing High and Swing Low points.

*A Swing High is a candlestick with in any case two lower highs on both the left and right of itself.

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

Using Fibonacci Retracement with Trend Lines

Another good instrument to combine with the Fibonacci retracement tool is trend line analysis. In the end, Fibonacci retracement levels work great when the market is trending, so this is more logical.

Keep in mind that,  traders use Fibonacci retracement levels as a way to get in on the trend, whenever a pair is in a downtrend or uptrend. Look for levels where Fibonacci levels line up right smack with the trend.

It does pay to make use of the Fib retracement tool, even if you’re preparing to enter on a retest of the trend line. The combination of both a diagonal and a horizontal  support or resistance level could mean that other traders are watching those levels too.

Remember, as with other drawing tools, drawing trend lines can also get pretty subjective.

You don’t really know how other traders are drawing them, but you can be sure of one thing, there is a trend going on.

If you see that a trend is increasing, you should be looking for methods to go long to give you a better option of a profitable trade. You can use the Fibonacci retracement tool to assist you find possible entry points.

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