## Best forex fibonacci trading strategy 2022

To be successful in forex trading, you demand to employ some kind of strategy. For some, this might be every bit simple as developing a trading budget and schedule, whilst others may look into more than complex mathematics-based approaches.

One popular strategy uses the Fibonacci sequence. The proper noun refers to a mathematical phenomenon wherein the same string of numbers tin can be institute all effectually usa – in everything from nature to compages. So how do nosotros apply this to forex trading? In the post-obit guide, we’ll have a look at how traders employ the sequence to inform their trading strategy.

## Fibonacci numbers

Before nosotros expect at applying the Fibonacci sequence to trading, we need to take a closer look at the sequence itself and understand its unique mathematical properties. Put simply, the Fibonacci sequence is a cord of numbers where afterwards 1 and 0, every subsequent number is the sum of the two previous numbers. This gives u.s.:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181… advertisement infinitum.

Fibonacci trading strategies are built around the relationships between these numbers. Of course, there are infinite ways of interpreting a cord of numbers, but we will await at a few specific applications.

For example, dividing ane number by its successor will give a figure of 0.618 and if yous divide a number by some other ii places higher it will approximate to 0.382. Both of these figures come into play when creating a Fibonacci trading sequence, every bit we shall come across.

## Put the Fibonacci numbers to use

So, what do these numbers take to exercise with

forex trading

? The idea is that in a market uptrend, you buy on a retracement, having identified a Fibonacci support level, while during a downtrend, you sell at a Fibonacci resistance level. Nosotros tin can use the numbers 0.618 (61%) and 0.382 (38%) as a basis for edifice these levels, as follows:

###
**Retracements**

A retracement is a means of identifying a potential change in the price management of an asset. We can utilise the Fibonacci trading strategy to find key levels of support and resistance in previous toll movements, the theory existence that later a surge in toll movement, the market place will return to a particular bespeak before continuing in its initial direction.

Typically, traders utilise the Fibonacci figures of 38.2% and 61.8%, along with 50%, to draw retracement levels across the nautical chart and identify cost levels of support and resistance where a reversal in direction is nearly likely, which in plow tin can exist used to find suitable entry levels. Note that the 50% level is not derived from the sequence, but is generally included in the strategy.

###
**Extensions**

The next stage in building a Fibonacci trading strategy is to place extension levels. Extension points are used to place potential exit points. Here, we use Fibonacci numbers extending beyond 100% – for obvious reasons. Using elementary sums based on the sequence gives u.s.a. the key extension points: 61.8%, 261.viii% and 423.6%. Once again, we use these figures to depict our potential exit points. But put, if nosotros use the Fibonacci retracement levels to find the entry point to a trend, then the extension levels are used to observe the stop of that tendency.

## Fibonacci trading strategies in practice

Traders use strategies in different ways and at that place are numerous applications of the Fibonacci trading strategy. Having gear up your forex Fibonacci levels using the formula above, you could purchase most the 38.ii% point, so set up a cease-loss lodge just below the 50% level. Alternatively, you could likewise choose to purchase near the 50% betoken with the stop-loss order placed nether the 61% line.

If you are entering a sell position most the top of the toll swing, you can employ the Fibonacci retracement levels as profit-taking targets. If the marketplace retraces close to one of the Fibonacci levels before continuing its previous movement, y’all can utilise the higher Fibonacci levels of 161.8% and 261.eight% to place possible future back up and resistance levels if the market exceeds the high/low that was reached before the retracement.

Upward side by side, take a wait at how y’all tin practically draw retracements levels. A applied application will enable you lot to really utilise this strategy to the biggest degree.

## Draw Fibonacci retracement levels

At this phase, y’all might be wondering exactly how you draw the Fibonacci retracement levels onto your trading platform window. The skilful news here is that any reputable operator will have numerous tools to assist yous achieve this. In fact, many will even automate the process completely, meaning y’all just have to select the relevant options. With nextmarkets, for example, you’ll discover the FibR tool volition allow you lot to add your retracement lines without having to do any calculations for yourself.

## Does Fibonacci trading fit?

Every trader will have their own style and employ strategies that fit with that style. The reward of the Fibonacci trading strategy is that information technology offers a defined formula for identifying trends and thus potential entry and exit points. This is particularly benign for keeping emotions in check and ensuring you stick to the program.

Some other great thing about forex Fibonacci trading is that it can be used in conjunction with various trading approaches, including 24-hour interval trading, swing trading, scalping and position trading.

Withal, y’all do not have to utilize the sequence. It is merely 1 strategy that traders ordinarily apply and has been shown to yield results – but information technology isn’t a magic ticket an

d there are numerous other approaches on how to ascertain resistance and support points.

Every bit nosotros’ve touched upon above, the Fibonacci strategy is not a magic ticket to trading success. No strategy is foolproof – and trading wouldn’t actually be all that feasible if one was. Strategy can exist seen as a fashion of standardising your arroyo to trading. There are no guarantees that price motion will comply with the theory and not soar by retracement levels without rhyme or reason.

## Downsides to the Fibonacci approach

There are a few potential weaknesses in the Fibonacci approach that traders should be enlightened of:

### Reliability

The Fibonacci strategy requires the retracement levels to be drawn at the right time for them to be useful. As we noted higher up, they need to be in place following a price swing, when the market has levelled out. As such, they are time-limited. The forex marketplace moves notoriously quickly and then setting the 61.8% retracement level on a monthly chart will likely be more reliable than the same line drawn on an hourly chart. You should therefore encounter this as a more reliable indicator over a longer time period.

### Consistency

In the by, novice traders take been known to be inconsistent when drawing Fibonacci lines onto a trading nautical chart – failing to set the points candle body to candle torso or wick to wick, which inevitably leads to inconsistent results. Nowadays, much of the process is automated, but information technology’south of import to ensure you are using the Fibonacci tools correctly and – most chiefly – consistently, past ensuring you are using the aforementioned settings and format whenever you apply the Fibonacci strategy. You’ll also desire to make sure you lot are aware of all the unlike options available when using Fibonacci software.

### Selection

Another potential shortcoming with the Fibonacci strategy is that you demand to exist able to identify where and when the market place swing points are. This might seem elementary enough, but everyone has their own way of looking at charts and using different fourth dimension frames can dramatically change how you come across market events. You’ll demand to give this some idea – especially if you lot are new to the markets and accept yet to form your own habits and particular mode of viewing charts.

## Decision

Nigh top-level traders will apply strategies at some stage and the Fibonacci has long been held in loftier esteem. Having a standardised fashion to ready your technical indicators is certainly going to be a plus indicate and will go a long style to helping you become a amend, more consistent trader.

The bang-up thing about the Fibonacci sequence is it remains constant – whether you

trade EUR/USD

or

merchandise GBP/USD

, the arroyo remains unchanged. Yet, information technology’due south worth noting that there are plenty of other indicators out there, such equally the moving boilerplate (MA), the exponential moving average (EMA), the Stochastic oscillator, and the moving average convergence divergence (MACD). Y’all should exist aiming to utilise the Fibonacci strategy in conjunction with at least 1 other arroyo.

By now you should have an thought of the Fibonacci strategy and how to employ it to charts. We’ve besides pointed out some of the pitfalls to exist aware of. If y’all plan on giving it a get, nosotros’d suggest doing so with a gradual approach – make a few small trades with the strategy and ensure you know exactly how it works. If it fits well with your trading style, you can and so first rolling information technology out as a mainstay of your regular trading.

## Fibonacci trading strategy FAQs

**Source: https://www.nextmarkets.com/en/trading/strategies/forex-fibonacci**