When trading the fibonacci trading tool, you are bound to deal with a lot of numbers. Day traders will agree that there is no trading the trending market without reference to the fibonacci trading tool known as the fibonacci retracement calculator. It is one of the major forex trading tools when it comes to trading a trending market. With the retracements, a trader can make strategic entry points, exit points, and set stop loss levels. Since there are more than one major level in trading fibonacci retracements, traders may not know which level is better than the other. All of these levels are great, they deliver in their own capability, but it will be nice to qualitatively analyze one’s trading strategy and identify the best trading level to work with.
If you know how to calculate and apply fibonacci retracements, you will agree that you cannot calculate fibonacci retracements without first knowing the dominant trend. There are times when you look at a trade chart and it is difficult to tell if the trend is moving upwards or moving downwards. The trend is always relative to the retracement and as such is needed in the calculation of the fibonacci retracement.
CALCULATING THE TREND WITH EXCEL
In cases where it is tricky telling if the trend is moving upwards or downwards, how do you identify that the actual direction of the trend, (because there is always a direction)? From your chart on excel, you can use the slope of linear regression line to calculate the trend. There are many other methods you can use to calculate this, but let us focus on linear regression line method.
WHAT IS A LINEAR REGRESSION LINE?
The linear regression line is a statistical tool that shows the best fit straight line through a set of data series. Looking at a complex chart (where it is difficult to tell the direction of the trend), you can make many straight lines through it. In calculating the fibonacci retracement with excel, just any straight line does not apply. What applies id the straight line that with the best fit through the data displayed on your chart. This straight line should cut across as much supports and resistance as possible in order to produce a slope for the right trend. After you are done with the bet straight line on your chart, your attention should now go to the slope. If the slope is positive, then the trend is upward, if it is negative, the trend is downward. From there, you can go ahead to calculate the significant high and low using the MAX and MIN functions.
That is how to find the direction of a trending market using fibonacci retracement on excel.