A fibonacci calculator online is an online trading tool which calculates the retracement levels of a trade. A fibonacci retracement level is a term in technical analysis which refers to the areas of support and resistance in a chart. There are different tools for trading the forex market, but it is important to note that these tools cannot be used in just any market condition. Some tools work best for volatile markets, trending markets, day trading, etc. The fibonacci calculator is preferably used in trending market as opposed to other types of market conditions. If used in other market conditions, it may not produce good results.
SUPPORT, RESISTANCE, AND FIBONACCI RETRACEMENT
From the definition, we have that the fibonacci calculator gives the value of the fibonacci retracement, referring to the areas of support and resistance in a chart. The question now is; “what is the need for a fibonacci retracement in forex trading”? To understand the value of fibonacci retracement, we need to understand the meaning of support and resistance.
WHAT IS RESISTANCE?
Resistance is the highest level the price of a security gets to before it reverses and starts going downward. If the price of a security is going in a zigzag pattern; going up at one point, and then down at the other point, the point at which the price stops going up and start going down is known as the resistance. In a trending market, there are many resistance levels. From the history of the trade, the fibonacci calculator can easily calculate the next resistance in the chart.
WHAT IS SUPPORT?
Support is the exact opposite of resistance. It is the lowest point where the price of a security gets to before it starts moving upwards. In a trending market, the price is generally moving in one direction. If the market is trending downwards for instance, there will always be points where the direction of price changes and tend to move up; but since the market is trending downward, this temporal upward movement of price will eventually come down to low point (support) that in most cases might even be lower than the previous “low point”.
Knowing the future support and resistance levels, as calculated by the fibonacci calculator, will make it easier for a trader to strategically place trades in the right positions to avoid losses. If you know that there will be a resistance at a point, you can decide to sell off your security before the price of the security starts to go down. When the price of the security eventually goes own as calculated in the fibonacci retracement online, you can buy the same security at a low cost before the price goes up again.