Fibonacci levels in Forex trading

Fibonacci levels are one of the most reliable technical analysis tools that are used to discover hidden resistance / support levels and other important market boundaries. They lie mainly at the core of the strategies being built on price rollbacks.

To find these hidden levels, there is enough knowledge of Fibonacci numbers, tools that connect the price maxima and minima on the chart, and the simplest calculations.

Fibonacci numbers are a sequence constructed in a special way: starting from the sum of two units, each next number is the sum of the last two terms of the sequence. Thus, the following series of numbers is obtained: 2, 3, 5, etc., which has remarkable properties. In particular, we are talking about the ratio of the "golden section", which found its reflection not only in art, but became indispensable in trading in the foreign exchange market.

Fibonacci numbers link important relationships, with which you can predict the interaction between the trend and the countertrend of the price movement.

Fibonacci retracement levels of 0.38 (38%), 0.5 (50%) and 0.62 (62%) are also calculated using the Fibonacci numbers. The price after its movement is adjusted according to these percentages, which helps to predict the Fibonacci levels to which the countertrend of the main trend can penetrate.

Fibonacci numbers also help to determine how far the price can go in search of new extremes, while the zone of the flat does not finish the current trend in the market. It is through these hidden points that resistance / support levels will pass: on them, the price will either fluctuate, or it will turn from them in the opposite direction.

Trade in Fibonacci levels is greatly simplified by using modern tools used for technical analysis. There was a time when swing traders had to calculate the rollback levels using a calculator, and then manually enter them into the computer. Currently, most graphics programs contain a set of tools that allow you to literally in a fraction of seconds to do all the required mathematical calculations.

In particular, in the MT terminal, the Fibonacci retracement grid is set by simple tension using the Fibonacci Lines tool. Variants of its construction differ depending on the goals.

Determination of correction depth

Fibonacci levels for determining the end of the correction are obtained by the tension of the grid, which completely covers the impulse movement from its beginning to the end of the wave. In this case, the following line values will be the strongest of the resistance / support levels: 38.2 (38%), 50 (50%) and 61.8 (62%). Profits are fixed on them if the trade (despite the fact that it is very dangerous) is conducted against the trend or the market enters the trend, for example, using a pending order.

Identification of potential targets

To determine where the price may rush, the grid is stretched in reverse: from the end of the movement to its beginning. Usually in this case, the levels are 161.8 (162%), 261.8 (262%) and, possibly, even 423.6 (424%). This is especially true for currency pairs with high volatility, which can overcome considerable distances. It is these values that should be taken into account for fixing profits in trade.

Using the indicators considered, important technical levels are determined. Each trader decides how to use them. For example, puts them on pending orders, for someone it is the level of stop-losses, while others fix profit.

Fibonacci levels are a significant reference point for almost any trader, which means that they accumulate significant volumes of trade. That's why even in the case when the Fibonacci sequence does not work out completely, the influence of the masses "forces" the levels to work.