Fibonacci ratios are quite popular in the world of trading. The numbers generated from this ratio calculation can help you in determining entry and exit levels.
The Fibonacci ratio was first introduced by an Italian medieval mathematician. His name is Leonardo Fibonacci which comes from the city of Pisa. It introduces a series of numbers whose ratios are in the proportion of forms in nature. The series of numbers he also involved in the calculation of breeding rabbits in an ideal situation. Later, this series is known as the Fibonacci sequence or Fibonacci number. For more information, please visit cfd trading
Traders use the levels provided by the Fibonacci retracement to help determine the range of potential areas as support and resistance. This tool can be used properly when the market is in a state of “trending”, whether it is uptrend and downtrend, but less effective when applied at the time the market is in sideways condition. The basic concept of using the Fibonacci retracement is to look for a buying opportunity when the price is in the support range. Instead, you can look for a selling opportunity when the price is in the range of resistance obtained from the Fibonacci retracement.
To be able to find the retracement levels, you must first find the highest points and the significant lows. These points are called “swing high” and “swing low”.In the upward trend, you are pulling the Fibonacci retracement from the swing low to the high swing as seen in the image below.
On the contrary, on the movement at the down trend, you are doing is pulling the Fibonacci retracement from swing high to swing low as seen in the picture below.
By using this Fibonacci retracement, you can also take several levels for you to make reference area that will be useful to determine entry level. The popular levels are 38.2%, 50.0% and 61.8%. In the range of these levels often appear to buy or sell signals whose accuracy is high enough.
Fibonacci retracement levels are actually supported and resistance levels. Thus, the reference area for finding sell signals is actually the resistance area. Thus, the reference area for finding buy signals is actually the support area.The strategy is similar to bounce trading. You wait for the pullback to the reference area and look for any confirmation of buy or sell signal. But since you have not studied buy or sell signals, for a while you are using Fibonacci Retracement just yet. When price movements are stuck in the reference area, then you can try to sell or buy.
Now, let’s look at the application on the price movement chart.
As already explained, you can use the Fibonacci reference area to find the buy level. Of course, this is what you do when uptrend.In applying this Fibonacci retracement, most traders make mistakes in determining swing high and swing low. Therefore, it takes careful observation and practice to sharpen your acuity recognizing swing high and swing low. Also, patience to wait for confirmation in the reference area is absolutely necessary in order to practice this theory well. Feel free to contact our Education Team for more detailed assistance or explanation.