Trading in forex is a tricky business, especially for new traders. Since the forex market is highly volatile, an investor needs to know when to buy or sell stocks to maximize profits. Successful forex traders use the Fibonacci retracements to predict the market trends for high returns.
Fibonacci retracements are used to place orders in the forex market. By using the Fibonacci retracements, you can determine trade-off support and the levels of resistance.
I would recommend Fibonacci retracements to any new trader who has no or little experience in forex trading. A Fibonacci retracement strategy will enable you to know the entry and exit points in forex trading.
What Are Fibonacci Retracements?
Fibonacci retracement is a systematic strategy used to identify the support and resistance levels in a forex market. The resistance and support levels are calculated from the trade movement in the market. The up and down movement of the market levels flattens the price levels.
Trading in forex is based on the market ratios and not on an individual trade. The Fibonacci trading strategy uses the raw data from the market. Using the raw data eliminates the emotional bias that may influence the market. Removing the emotional barrier in trade stabilizes the forex market.
The Fibonacci marketing strategies vary depending on the forex market. The forex market is either long-term or short-term. The short-term trade market can be minutes or hours, while the long-term market ranges from months or years. Most of the stock market deals are closed within the shortest time possible because of the fluctuating currencies.
How Does Fibonacci Retracement Work?
Fibonacci retracement works in ratios that are derived from the raw data. The Fibonacci principle is based on the fact that a series of numbers create ratios. The ratios describe the general proportions of the things found naturally on the earth’s surface. The series of numbers range from zero.
Two numbers are added to get the third number. For instance, if your series of numbers are from 0, you can add zero to one to get the next number. Thus your series will be 0+1=1, 1+2=3, and so forth. Adding these numbers will form a sequence of 0, 1, 2,3,5,8…
These numbers form a sequence where the last number ratio over the second last is approximately 1.618. This ratio is known as the golden ratio, and it is found in most natural objects. Many traders use the golden ratio to determine the level of retracement and extension. The retracement and extension levels show the profit levels in the forex market. Traders place their selling or buying orders depending on the retracement levels.
You need not worry if you are not conversant with the calculation of these ratios. Install the retracement software, which will do the calculations for you. All that you need to do is to observe the retracement. Knowing when the previous level will go back to the original path will help you know when to buy or sell orders.
How To Use Fibonacci Strategies In Forex Trading
To succeed in forex trading, you need to know the commonly used Fibonacci retracement levels. These levels are 38 percent, 50 percent, and 61 percent. By using these percentages, a horizontal line is drawn across the chart.
The lines mark the positions where the retracement of the market is likely to occur. Retracement of the market occurs before the overall trend, which was initially formed a large price.
How to Maximize Profits Using The Fibonacci Trading Levels
To maximize profits in the forex market, follow the following steps:
- Purchase about 38.2 percent of the retracement levels that have stop-loss order. This level should be slightly below 50% level.
- One should order for more than 50 %, which are above 61.7 percent level.
- Make use of the Fibonacci retracement levels as targets of making profits.
- For future support and resistance, consider using higher Fibonacci levels, which are between 161.8% and 216.8%. Using higher support and resistance levels will help you trace the markets close to one of the Fibonacci levels.