Source: Anna Nekrashevich
If you’re new to trading, you may have heard more experienced traders predicting future prices in financial markets with a great degree of precision and accuracy. While I’d love to tell you they use magic, it’s not so.
They use a couple of indicators, and one of the most popular ones thrown around often is Fibonacci retracement.
Because Fibonacci retracements is one of the best technical trading indicators every trader should know. Forex traders use the Fibonacci analysis to determine key price levels to enter short and long-term positions.
Before we uncover what you can do with this trading tool, let’s first find out what Fibonacci retracements are and why they’re important to us.
What are Fibonacci retracements?
Simply put, Fibonacci retracements are horizontal lines (more like signals) that forex traders use to determine levels of support or resistance before placing buy/sell orders to enter trades and either make profits or stop-loss orders.
Fibonacci Forex trading helps you know the time and price advantage for good market entry. As a new foreign exchange trader, applying Fibonacci retracements as a technical analysis method will help you avoid bad entry points
The best time to use the Fibonacci tool is when the market is trending. The idea is that after the price begins a new trend either up or down, it’ll retrace back to a new support or resistance level before resuming the trend. To put it into perspective, when the market is trending up, you can either go long on a Fibonacci support level or short on a Fibonacci resistance level when it’s trending down.
Source: Admiral Markets
CAVEAT: keep in mind that Fibonacci lines, as a predictive technical analysis tool, should be used as a confirmation, not a sole indicator for exchange rate level forecasts. Other technical analysis tools you can use include moving averages, moving average convergence divergence (MACD)…