How to use Fibonacci ratios in Forex trading

It is well known by traders that the cost value of things never ascends in a constant straight manner. The cost values might increase or decrease Fibonacci Ratios helps to calculate a wave in order to expect where the cost values might reverse to when it has pulled back.

The reversing of the cost values can be expected by using the key levels which are the Fibonacci ratios. Hence, the Fibonacci ratios can be known merely as resistance and support levels. Because of a massive number count of huge traders watch the levels, they function well.

Now, Fibonacci levels welcome a combination with other trading strategies too. An example is when one makes use of the moving average, Fibonacci levels can be applied to calculate the rally’s length and wait till the averages in motion confirm the bearish or bullish trends when there is a pullback of the price.

Surely, a little discretion is needed when using the Fibonacci levels. A good example is when choosing your Fibonacci level measurement points which varies between traders. It is the same way that some traders use the closing and opening prices alone while some others uses the low and high prices.

One should note that Fibonacci levels are science too.

How to understand the Phior Golden Ratio

1.618 is known as the phi or golden ratio and its’ inverse is the 0.618. The Phi correctly pronounced “fy” or “fi” is the very ratio in length of a segment of a line to another segment, which is gotten when the authentic line is at a particular point. From the example below, the length between the A point and the C point can be said to be correct the length between the B point to C point multiplied by 1.618. Likewise, the length from C to B is the length between C to A times. The word “Phi” stands for the 1.618 while that same word “phi” but having a “p” lower case stands for 0.618, the opposite, in the mathematics world.

How to use Fibonacci ratios in Forex trading

Leonardo formed the Golden Ratio which occurs in Numerical Series and which is also called the number sequence of the Fibonacci.

The Fibonacci retracement tool – MT4

A retracement tool is a measurement tool for the Fibonacci that can be accessed on the MetaTrader 4 (MT4) platform for trading also, like any other platforms for charting or trading. The way to link up to this is to first get into the main menu of the MT4’s platform then click on the Insert, you see a row of options and click further on Fibonacci and finally the word “Retracement” you see there.

Also, there are more other tools for the Fibonacci which includes the Fibonacci Arcs, Spiral etc. But still, among these, it is that retracement tool that is used more widely. On MT4 and on most of the others (charting platforms), their levels can be adjusted also.

Here in the example below, the 0.618, the 1.618 (also known as the extension) and then the 0.382 are only applied. You clicking the Fibonacci tool twice and also filling in the values would adjust the values further. The below figure bears a good example:

How to use Fibonacci ratios in Forex trading

Drawing Fibonacci levels

Being able to point out a vehement motion inside the market is the first important thing to do. This motion can actually be either a Strong Decline or even a Strong Rally. Beginning now from the direction opposite to this vehement movement, ensure the rally’s starting point is clicked on (either low or high). Then, what you do next is to drag to the end point, the Fibonacci end tool.

Now, to be able to see quickly whether you have plotted correctly the tool (Fibonacci), just look to the values of 0 and also 100. If the levels have been plotted, then you would see the first 0.382 retracement level and after that, the 0.618

Below is a perfect illustration of the way of drawing with the tool (Fibonacci).

How to use Fibonacci ratios in Forex trading

Add a Comment

Your email address will not be published. Required fields are marked *