Finding Great Entries With Fibonacci Analysis
Finding Great Entries With Fibonacci Analysis
The
Fibonacci retracement is an extremely well-used tool for helping traders
identify levels of support and resistance. The tool comes as standard
on the MT4 platform and helps traders measure a swing in price and
identify key levels within that price swing which might serve as turning
points if retested.To get more news about WikiFX, you can visit wikifx.com official website.
In
the image above you can see that we have applied our Fibonacci
retracement tool to a bearish price swing. Price sold off from point A
to point B. Once price started to bounce from point B, we would apply
our Fibonacci retracement tool measuring from the top of the swing to
the bottom (and vice versa for a bullish move). The tool then plots on
our key Fibonacci levels to monitor. As you can see price initially
reversed from the 50% before travelling higher to test the 61.8% level
which ultimately sends price lower.
This is a clear example of
the basic way we can look to use Fibonacci retracement to identify
trading opportunities. This can be particularly helpful in trending
market helping us to enter as the market corrects, allowing us to get in
as the trend then resumes.
Quick Tip:
The Fibonacci
retracement tool highlights the key levels for us to monitor but we dont
know which, if any, will work. Traders should look to identify
confluence between key Fibonacci levels and other technical elements
such as price action signals, support & resistance, trend lines or
indicator readings to build a proper trade idea.
Looking at the
example again you can see that we actually have confluence at the 61.8%
Fibonacci level with trend line resistance coming in at that level also.
This suggests that this would be the strongest level to look to trade.
The Fibonacci Extension
The
Fibonacci extension is another classic analysis tool. This time, we
measure the price swing but instead of looking for levels within the
move which may serve as turning points if retested, we are looking at
projected levels which are yet to be tested but could serve as turning
points if they are.
In the example, above you can see that we measure
our bearish price swing from top to bottom (vice versa for bullish
move) and this time the tool plots levels below the low of the swing
point. At point C you can see what happens when price meets the 127%
extension, it reverses and trades higher.
Again as with the
retracement tool, we can look to identify confluence at key Fibonacci
levels to help us identify the stronger levels to look to trade. Whereas
we might look to use the Fibonacci retracement tool to help us identify
points of correction in a trending market, the extension tool can be
useful for identifying potential trend reversal zones and can also be
used as a tool for setting profit targets whereby traders look to Bank
any open trades as they test the key extension levels.
As you can
see, Fibonacci levels can offer us powerful entry points to key moves.
The tools are simple to use and once you are confident in tracking the
right price swings you should be able to identify good reversals. The
beauty of this method of technical analysis is that it really
compliments other forms such as support & resistance, indicator
trading, price action trading and is a versatile way to approach the
markets.
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