Fibonacci levels on forex
Have you decided to become a forex trader? Have you read reviews on forex brokers, learned the terms and decided to master Fibonacci levels? Many traders know how to use Fibonacci levels, which are considered to be a great tool to analyze the market and determine probability of technical levels. Technical levels are essential, as them may affect the price changes.
How to construct Fibonacci levels?
When it becomes necessary to quickly assess the market, many traders give precedence to Fibonacci grid of levels. Construction of the Fibonacci levels is not complicated at all, it is based on a simple principle. First off, determine pivot points on your graph. One is set at a value of 100, another is 0 (as %); between these two points you have to spread a net. To be able to use Fibonacci levels successfully, you have to stand upon the construction rules. It is important to make the right choice of pivot lines.
The reason for that is that to overcome obstacles is more difficult for a price than to make a rollback.
When constructing a grid you have to use the key extremes of the price graph – that is, the minimum and the maximum value; in other words, they have to be at the pivot points. Levels can expand only among the significant points, not just among any of them. Moreover, you have to take previous movement into consideration. If there was an uptrend, the grid has to be spread according to the downrend which had preceded it; in case of a downtrend it has to be vice versa.
How to use Fibonacci levels?
What can you get from them? Say, you’ll know the price moves. You’ll be able to figure out values of support and resistance as well as how likely is the trend movement correction. When you establish that price is close to the level, you have to know that most likely a reversal is near. The reason for that is that to overcome obstacles is more difficult for a price than to make a rollback. Rolling back at certain intervals always goes hand in hand with the trend movement.
A great way to find out the possible rollback levels is the Fibonacci level system.
Using Fibonacci ratios you’ll understand how trend and countertrend movements interact; besides there is a possibility of restitution of up to 62%. In case you want to foresee which level has a countertrend movement, use an after-trend ratio, at that the direction can be any. The grid has to be over either the lowest or the highest points, and after that key price levels will intercross with percentage levels. Once the graph models and levels coincide, you’ll find see the best opportunities for trading.
The resistance value and the importance of Fibonacci levels depend on the timeframe size. The larger it is, the more important are the levels, and the higher is resistance.
Having the knowledge on how to use Fibonacci levels you’ll be able to use many systems, because the majority of systems is based exactly on them. Beginners, expecially if they read forex articles, need to know that Fibonacci levels do not necessarily get confirmed (this doesn’t happen too often, but is yet possible), therefore we recommend to combine them with other graphical tools.