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How to use Fibonacci levels in Forex trading?
Written by: PaxForex analytics dept - Thursday, 20 October 2016 0 comments
Fibonacci levels can be considered as a very strong price indicators in the forex market. A trader can successfully use this tool alone or in combination with other indicators.
When using Fibonacci indicators it is necessary to determine long-term highs and lows. You can look back at a few days, weeks or even months. The goal is to find the very obvious support or resistance levels (ie week highs, monthly minimums, etc.).
The main condition of a successful usage of Fibonacci levels is orientation only on the most obvious highs and lows. Why is this so important? Because you want to use the same levels as all the other market participants. When these levels are reached, many traders react to them, which will cause the market to move.
Confluence (merger, combination) - this word is often used in Forex market. It means that two independent indicators define the same price level as a possible support or resistance.
Through finding a confluence, you will gain more confidence
in your trading deals. If Fibonacci level landing at the same price level as the double bottom or top, you can be confident that the market will respect this price. At a minimum, the price stops when it reaches this level and more than likely that it will roll away far enough to ensure that you have made a profit.
Another aspect that is really good at Fibonacci levels is that they go beyond the highs and lows that you used to draw in the price indicator. For example, the price is more than a very strong resistance point shows you and moves upward. You enter a trade when the price exceeds the resistance, but do not know where to place the goal of taking the profit. The next major sustainable level - 100 pips but your profit should be closer.
Fibonacci levels extend beyond of its borders, providing you with the level of taking profit. They are called the Fibonacci extensions and let the market tell you where it is better to take your profits, without forcing to choose an arbitrary number of pips.