The fibonacci forex strategy is a way of analyzing the forex market, classified under technical analysis. It does not seek to evaluate the value of the security of interest; rather, it makes use of charts and other trading tools to predict the future of the security. This will help traders to prepare in advance with regards to such predictions.
The fibonacci forex strategy was developed from the fibonacci retracements. These retracements have to do with support and resistance; points where the price of a security stops going lower and higher respectively. When the forex market moves a distance that is higher than the existing resistance, or lower than the existing support, the fibonacci retracement lines can be used to find out the potential retracement levels of the market. Retracement is only a temporary reversal in the direction of the market. This is to say that his notable distance moved by the market is not expected to remain so for a very long time. It does not signify a change in the larger trend because the market will eventually return to its normal trend.
The thing now is what to do with this retracement. When the value of a commodity being traded appreciates above the resistance level in a trending market, or the other way round, it is a great opportunity to make some profits if the cards are played right. The fibonacci forex strategy is one of the verified methods for trading such market condition.
Already, there are horizontal lines displayed on the chart. These lines are what tell the trader what will happen while the retracement is going on. If the commodity value appreciates more than the already existing resistance, the horizontal lines are considered the support and price levels, which signifies where the retracement can end for a possible resumption of an uptrend. The same applies to the opposite case; the fibonacci levels will be regarded as the potential resistance levels in a market that has moved down in price.
From what has been said so far, the fibonacci forex strategy, which is based on the fibonacci retracement levels, can be used to trade not only a trending market, but also retracements. Note that the key retracement levels are 38.2%, 50%, and 61.8%. When the forex market retraces, it goes at least half the way before going back to its normal trend.
That is why 50% is included to represent that it must go half way, not necessary because it is a fibonacci number.
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