How to Use Fibonacci Levels on Forex?

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.

How to choose the right currency pair?

Practice shows that most novice traders are limiting themselves to the pair EUR / USD. In fact, this financial instrument has a number of negative features...

10 Ways of Risk Management at Forex

The popularity of forex trading has always been high for a number of reasons. The main one is the outstanding profit potential, provided by a significant...

Where did bulls and bears come from?

Learn where bulls and bears came from and how this animal imagery caught on to be a central part of the financial markets until...


ABCs of leverage in the forex market

The usage of of such a specific tool related mostly to forex market as leverage is an opportunity to increase the trading volume at the...

Forex robots and how they work

In essence, there are two ways Forex traders can approach trading: they can either decide to analyse the market and trade on their own, or they can...

How to become a successful day trader

Anyone can become a day trader, learn how to do it quickly, how to manage the risk, and what to avoid to succeed in financial markets. Read the article...


Currency pairs. Base and quote currencies

Currencies on the FX market are always traded in pairs. In order to find out the relative value of one currency, you need another currency to compare. When...

Trading Checklist - Interview with Expert

As a country manager I get asked this and other trading questions daily. My position also means that I get to watch both successful and not so successful traders...

Everything you need to know about Forex

What is Forex trading? This article covers everything novice traders need to know about the industry, how to get started, how to grow as a trader...

  


Share it on:   or