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A lot of people think that forex trading is a matter of the latest century and everything that is happening on the market is new and innovative. We cannot blame this idea for existing as we see the forex trading with algorithms, charts, computer monitors, software programs, etc. However, we can find the influence on the market from the early centuries, not the same current system but a very important aspect that had an impact on the foreign exchange market.
Leonardo Pisano Bigollo was the real name of Fibonacci. He was an Italian mathematician who was known as “the most gifted western mathematician of the Middle Ages.” Fibonacci is best known in Europe for his Hindu-Arabic numeral scheme, which he wrote in his book Liber Abaci in 1202 (Book of Calculation). He’s also known for the Fibonacci number sequence. However, they were named after him, not that he discovered the series himself. In the Liber Abaci, the numbers were used as an example. 0,1,1,2,3,5,8,13,21,34,55,89,144, and so on are the numbers. The trick is to add the first two numbers together to equal the third number (0+1=1), then add the second and third numbers together to equal the fourth number (1+1=2), and so on.
Now let’s describe how it is possible to use the Fibonacci tactic in the reading process. Having awareness is one thing, but putting it into practice is another. As a result, we’ll look at how to trade with a Fibonacci Trading Strategy as well as how to trade Fibonacci retracements.
When it comes to assessing consumer psychology, Fibonacci bonus thresholds are a perfect tool. Who wouldn’t want to save 50% on a purchase? Imagine you’re standing in front of your local shopping store when someone comes out and says, “Oh, everything in here is 50% off!” What does that mean in terms of psychology?
In the Forex market, the same is true. Let’s pretend there’s a pattern here. The trend comes to a halt and retraces 50% of the way out. Traders will take advantage of this moment! About the same way that shoppers do. However, the key, in this case, is the trending markets and Fibonacci levels in Forex trading work the best in this case. The Fibs have less worth in consolidations, corrections, ranges, and sideways movements. Especially in shorter time frames. The explanation for this is that traders, the economy as a whole, and therefore price activity, appear to overlook these amounts.
The currencies behave and respond to various tools and objects, such as tops and bottoms. If the currency is trending, even if the Fib is used on higher time frames, the instrument is a wonderful advantage because it shows you when the economy is about to turn around in the direction of the trend. Of necessity, many people are familiar with the Fibonacci retracement stages of 382, 500, and 618. 0.382 / 0.500 / 0.618 is another way of writing it.
Each trader’s strategy would be unique, but as an investor, think about how each of the strategies mentioned below could work into your overall market strategy. The options below aren’t used by any dealer, and it’s fine if none of them suit your plan. Fibonacci retracements are used in the following strategies:
- For a stop-loss order a little below the 50% mark, you can buy at the 38.2 percent retracement level.
- For a stop-loss order a little below the 61.8 percent mark, you can buy at the 50% level.
- Fibonacci retracement thresholds can be used as profit-taking targets when approaching a selling spot at the top of a significant move.
- If the price retraces back to one of the Fibonacci thresholds and then continues its previous step, you will use the higher Fibonacci levels of 161.8 percent and 261.8 percent to define potential future support and resistance levels if the market moves past the prior high/low.
Fibonacci retracements are used by forex traders to determine where to position market entry, profit-taking, and stop-loss orders. In forex trading, Fibonacci levels are widely used to define and exchange help and resistance levels. New support and resistance thresholds are often at or above these trend lines after a major market change up to or down.
Summing It Up
Finally, to sum up, almost every trader has a trading style or series of tactics that they use to increase benefit opportunities when controlling their emotions. The Fibonacci trading approach is based on hard data, and if a trader follows their plan, emotional intervention can be negligible. The above Fibonacci trading techniques can be used for both long-term and short-term transactions, ranging from minutes to years. Many transactions, however, are done on a shorter time horizon due to the nature of currency fluctuations.