Top Four Fibonacci Ratio Trading Technologies to Profit
When it comes to technical analysis, one of the most well-known technics is the Fibonacci ratio trading.
This ratio, which is sometimes termed the “Golden” ratio is a well-known mathematical relationship based on the sequence called the Fibonacci sequence.
Traders use thesis ratios ter order to plot particular chart levels from price extremes. Thesis levels are seen spil particular resistance and support levels for the trade.
They can be plotted spil horizontal or vertical lines, ventilatoren or arcs. Wij will take a look at some of the most effective Fibonacci trading strategies that one can employ.
What is the Fibonacci Ratio?
The Fibonacci Ratio is a ratio that has introduced itself ter a number of natural biological settings te nature. This is why it is termed the “golden ratio”.
It is calculated with the help of the Fibonacci sequence. This wasgoed developed by an Italian Mathematician where each number is the sum of the two numbers instantaneously preceding it. For example, the Fibonacci sequence is 1, 1, Two, Three, Five, 8 etc.
What is truly significant from the numbers however is the ratio of a number and the number instantly prior to it. This is 1.618 or 0.618 spil the inverse.
This is particularly interesting spil it applies to a number of elements ter nature. For example, the ratio of the leave opstelling ter plants or the dimensions on a starfish. It is also present te humans with the bones te our fingers with lengths at a ratio of 1.618 to each other.
Given that the financial markets are made up of human participants, many people are of the view that the Fibonacci numbers can be applied to charts.
The golden ratio is used to calculate various percentage levels which are used to plot the a number of lines te the Fibonacci chart. It is thesis levels that are of particular importance for the trader.
Thesis percentage levels are the 38.2% level, the 50% level and the 61.8% level. Spil you can very likely tell, the 61.8% level is the inverse of the Golden ratio and 38.2% is the the ratio of the numbers Two away from each other. Some traders also include the 23.6% level and the 161.8% level spil it gives them more granularity.
Thesis Fibonacci percentages are then used ter order to plot lines that are a specific percentage away from a particular pricing extreme. Thesis lines are then used by the traders spil resistance or support levels.
One of the most well-known Fibonacci trading technics involves the use of the Fibonacci retracement. This is essentially a range of horizontal lines that are plotted at a certain percentage from the embark to the end of a pricing advance. Thesis are called the “retracement levels”.
Ter the below chart wij have the USDZAR currency pair which has bot plotted with 30 minute candlesticks. Spil wij can see, the price succesnummer a daily low at 8am Thursday 13.128. There wasgoed a subsequent advance to 13.3129 at 12am on the Friday morning.
The Fibonacci retracement is then calculated from the advance of the uptrend (100% level) and plotted till the end of the uptrend (0%). The numerous levels inbetween thesis two extremes are the Fibonacci retracement levels. Thesis include the critical golden ratio level at 61.8%.
Spil you can see, the prices did tend to switch roles themselves when they kasstuk some of thesis retracement levels. This acted spil a resistance level for the price trends.
There are a number of different retracements based on thesis levels. All retracements that are less than 23.6% are considered “shallow” retracements. Retracements that are inbetween 38.2% and 50% are considered moderate retracements. Lastly, you have the golden retracement which is at the golden ratio level (61.8%).
Fibonacci Fan Lines
Fibonacci Fan lines are slight adaption of traditional Fibonacci levels. Thesis basically make use of the Fibonacci retracement levels to draw trend lines. Thesis are then also used spil support and resistance levels for a trending asset.
Below wij have the example of S&P 500 with the retracement levels drawn. Spil you can see, wij have also drawn trend lines from the begin through each of the retracement levels. Thesis are “falling” fan lines.
Thesis trend lines will now act spil support and resistance levels for the S&P 500 spil wij go forward. You could see the points at which the trend lines acted spil resistance spil the index attempted to switch sides course.
Fibonacci Time Zones
Another interesting use of the Fibonacci levels is when plotted across different times. Thesis are vertical lines that represent different times ter the trading day based on the Fibonacci levels.
Thesis Fibonacci “zones” are a number of days forward and are potential reversal points. Thesis are not spil indicative of potential reversals spil the Fibonacci retracement but they are nevertheless monitored by some traders.
Spil the very first few numbers te the Fibonacci sequence are fairly close together, it is hard to make any reasonable adjustment at that point spil it looks a loterijlot like noise. However, it is when wij get to the 6th retracement zone that the trader will commence to take note.
Te the below pic, wij have the Fibonacci time zones plotted on the USD/CAD pair with daily candles. Spil you can see there is fairly a loterijlot of noise with the very first few candles. However, from 6th zone onwards the trader could have used thesis levels spil indicators of potential reversals.
It is also significant to note that because thesis are merely zones and are hence not hard reversal points. The trader should use them only spil a guide. He should use other technical analysis instruments to confirm his / hier view about the potential reversal.
Now that you have an idea of some of the basic Fibonacci studies, it will help to take a look at some practical trades that could be implemented with thesis levels.
Due to the fact that Fibonacci sequences are Fractal, thesis strategies can technically be used for any time framework on the trade, even down to shortest framework.
Example 1: Shallow Retracement
Wij will take a look at an example of a shallow retracement which is a Fibonacci retracement that is below the 50% line. Thesis usually toebijten fairly quickly and require the trader to have a quick finger.
Te the below chart wij have the price of Spot Silver plotted with 15 minute candles. You can also see that wij have plotted the key Fibonacci retracement levels given by the advance te the price.
Spil you can see, the trader would have noticed the shallow retracement at the 1576 level. Indeed this acted spil a support level for the price of silver. The trader could have entered a long position on the price of silver and generated some profit from the increase te the price.
You can also notice that the original 0% level or initial high reached by the asset acted spil a resistance level for the price of silver.
Example Two: Golden Retracement
The Golden retracement is one of the most well know Fibonacci retracements spil it uses the key level of 61.8%. Traders treat the golden retracement spil a stronger support level. It is also lighter to act on the golden retracement spil there is some distance inbetween from the peak of the previous trend.
Te the chart below, wij have the price of Bitcoin with 30 minute candles spil its timeframe. Spil you can see, the price wasgoed advancing from Four,065 to Four,478 overheen the course of the Wednesday and Thursday.
The Fibonacci retracement levels were plotted below that. Spil you can see, the golden retracement level is at Four,218 and thesis acted spil a support level for the price of the asset for the entire of the Friday.
The trader could have used this retracement level spil an chance to come in Bitcoin te a long position when it kasstuk this support level. Indeed, this seemed to toebijten twice.
The retracement on Bitcoin seemed to proceed downwards on its third attempt below the support given by the golden retracement level.
Example Trio: Rising Fibonacci Ventilatoren
When there is an asset that is trending up ter price, one can plot the Fibonacci fan lines given by the key levels and use thesis to determine key support levels for the asset. This permits the trader to monitor thesis support levels even with an asset trending up.
Te the below picture, wij have the AUD/JPY cross plotted with Trio hour candles. Spil you can see, the price wasgoed advancing for a number of days. Wij have also plotted the Fibonacci retracement levels.
Along with the Fibonacci levels, wij have drawn the rising fan lines that cross through thesis levels. The trader will observe that the 50% Fibonacci fan line level wasgoed acting spil a support for the asset.
The trader could have used this spil an chance to go long the AUD/JPY spil it klapper thesis levels at least four times overheen three days.
Eventually, the retracement broke through the support level given by the 50% level and began an advancement downward continuing the long retracement slide.
Example Four: Falling Fibonacci Ventilatoren
On the other side from the rising Fibonacci fan, one has the falling Fibonacci fan. This is used when an asset is advancing downwards and trend lines are drawn through the key retracement levels.
The trader will look to the Fibonacci fan levels to act spil key resistance levels to the asset violating through and trending upwards.
Te the below photo, wij have the EUR/SGD that is plotted with 1 hour candlesticks. The price wasgoed trending lower from Friday the 11th to Monday the 14th. The Fibonacci retracement levels are drawn with the fan lines through the key levels.
Spil wij can see, the falling ventilatoren are acting resistance levels to the price recovering from the adjustment downward. This happened on at least three occasions spil the price wasgoed moving downwards. You can clearly see it on the 50% Fibonacci fan level spil well spil on the 61.8% (golden retracement) fan level.
Albeit the Fibonacci studies are seen spil significant levels when it comes to identifying corrections or a tegenstoot trend bounce, thesis do sometimes retrace themselves on occasion.
Fibonacci levels are also helpful to identify potential reversals of trends. However, thesis are termed reversal “zones” spil they are slightly more complicated to identify with certainty.
This is the reason that the trader needs to confirm potential trend reversals with other contraptions such spil momentum indicators, chart patterns and ingewikkeld candlestick patterns.
Indeed, this is something that is not entirely restricted to Fibonacci retracement and trend levels. The more technical indicators that confirm a trading signal the more concrete and strong it is.