The Fibonacci trading tool is one of the most popular with forex traders. It has been used in the finance industry for ages. And many forex traders have used it to make profitable trades. The Fibonacci tool has a rich history since it was developed by a famous mathematician many centuries ago.
Because of its mathematical nature, many new traders are afraid of it. However, once you have learned how to use it, it becomes a major part of your trading arsenal.
Here are the different types of Fibonacci tools that traders use for success in their trading.
When it comes to using the Fibonacci tools for trading, the Fibonacci retracement is one of the most popular tools.
The Fibonacci retracement is a pair of horizontal lines that help traders to determine the support and resistance price levels of currency pairs they want to invest in.
A support level is the lowest price point for the currency pair you want to invest in while the resistance levels the highest price point. Fibonacci retracement explores the movement of the price of a currency pair over a given time to identify these points.
By identifying a support and resistance level, traders can take a position with confidence. A long position will be entered into based on the support line. While a short position can be entered into based on the resistance level.
Fibonacci retracements should always be used together with other trading tools to make the right trading decisions.
Fibonacci extensions are a tool that forex traders can use to determine their take profit levels. Every time a trader enters into a trade, they need to know beforehand the amount of profit they will take. This is a risk management strategy that all traders are advised to follow.
However, many just come up with an arbitrary amount or acceptable level of profit per trade. To take the guesswork from setting profit, the Fibonacci extension is the tool to use.
The Fibonacci extension indicates how far the price of a currency pair is likely to move after a retracement. Additionally, it is also useful to indicate how far a price may fall.
The profit levels provided by Fibonacci extensions are good estimates that traders can rely on to make their trades.
Fibonacci arcs are half circles that once charted connect a high and low price point from a line known as a baseline. These arcs, like the Fibonacci retracement, indicate support and resistance levels. The period and price of the currency pair are important factors when you use Fibonacci arcs.
The longer the period being analyzed, the longer the baseline and the longer the arc.
For a trader, the Fibonacci arcs indicate support and resistance levels for the price of a currency pair. The arcs will also indicate points at which traders can expect a pullback before another rise in price occurs.
Fibonacci fans use Fibonacci ratios to predict support and resistance levels. This method uses a trendline drawn at given intervals. These intervals correspond to Fibonacci ratios to provide the analysis traders are seeking.
The lines of the Fibonacci fan are used to predict support and resistance levels for the particular currency pair being analyzed. A trader can also use the fan to find out retracement levels. Traders do this by taking the difference between the low and high points identified by the fan lines.
With Fibonacci fans, like all the other Fibonacci tools, traders can predict price points where they expect a turn in the price direction of the currency pair. A trader therefore can use this technique to make trading decisions that will end up profitable.
Like all other Fibonacci tools, use the Fibonacci fan together with other trading analysis tools.
Forex traders love the Fibonacci tools to carry out research and to help inform their trading decisions. There are many Fibonacci tools that traders can make use of. Mostly, these tools help them to identify points at which they can enter and exit a trade profitably.
Proper use of Fibonacci tools combined with other tools leads to long-term profit for forex traders.