Fibonacci instruments are very popular among the traders on the currency market. The developments of the famed Italian mathematician are widely used for analysis in the stock and exchange markets, as well as in the Forex market. Fibonacci has come to the sequence, in which every next number is the sum of the two previous ones – 2, 3, 5, 8… Noteworthy, in case you divide practically any number from this series on the previous one, than the result will be equal to 1.618.
Instruments, based on the sequence, which Italian mathematician has described, are widely used during the trading process. Most popular are Fibonacci Pivot Points. For the convenience, numerical ratios are used in percents. Correction levels have the following values: 23.%, 38.2%, 61.8%, 76.4%, extension levels – 138.2%, 161.8%.
Fibonacci Levels – Definition and Features of the Construction
Fibonacci Pivot Point is the built-in instrument in the popular MetaTrader platform. To apply points on the chart on the certain trading instrument, you need to choose "Insert" – "Fibonacci" – "Fibonacci retracement". There are many services that allow you to calculate Fibonacci Pivot Points number values in the Internet.
Fibonacci Pivot Points are rather effective and used widely to build different trading methods on Forex.
The net with Fibonacci points is being built on 2 pivot points. Significant extremes on the chart are better to be chosen as the points. First, you have to define dominant trend, after that you have to stretch between minimum and maximum the Fibonacci points. If the trend is upward, then the initial point (100%) is located on the minimum, and the final (0%) – on the maximum. If the trend is downward, then 0% will match to minimum, and 100% – to maximum.
Using of the Fibonacci Pivot Points in the Trading
As you know, any directed price movement practically always is accompanied by rollbacks and correlations. With the help of the Fibonacci Pivot Points it’s very comfortable to determine the trend strength on the Forex market, as well as to find resistance and support levels. In case of the price approximation to the Fibonacci pivot point, you can predict possible changes of movement direction. Initial levels of the correlation are:
- 23%;
- 38%;
- 50%;
- 62%;
- 74%.
The more the correlation is, the less is the trend strength.
Upon the placement of the Fibonacci Pivot Points on the charts you can see, how high the efficiency of this instrument is in the search of important points. Usually, many of important price levels are the same as Fibonacci Pivot Points. With the help of the Fibonacci net you can place take profit and stop loss orders. It’s better to place stop losses over the Fibonacci levels, to escape the backing-out. To place take profit, you can use expansion levels. In this case it’s better to place order a little bit closer to the level in order to increase to possibility of its execution.
Fibonacci Pivot Points are rather effective and used widely to build different trading methods on Forex. Despite this instrument does not allow to predict all price movement with 100% confidence. For example, price does not always stop after correction 23% or 38%, and for some markets very deep (even to 76%) rollbacks are usual.
- It is important to use the system of money and risk management. It’s necessary to place the stop losses or even to use other methods of the restriction of the losses (locking, hedging etc.)
- You should take into consideration the features of the certain markets, where you conduct trading. For example, stock market is characterized by rapid trend moving and small (till 38%) correlations. If we are talking the Forex market, we can say, that movements of the trade on the currency pairs are often accompanied by serious rollbacks.
- Ideally, Fibonacci Pivot Points have to be used with other methods of the analysis and forecasting of the finance instruments behavior.
It’s better to use Fibonacci Pivot Points on the charts from h1 and higher. The higher is the timeframe, the stronger will the signal be. You can place several Fibonacci nets on the chart in order to find most significant levels. In order to see the difference in them, it’s enough to use different colors and the construction thickness.
by , 2017.12.14