The Fibonacci retracement indicator is very popular in the currency trading market. It measures the ratio of a rise or fall in the last response to a particular number of Fibonacci levels. The indicator is calculated by dividing a particular price rise or fall by the given Fibonacci ratios.
Major Fibonacci levels
The 1×1 and 1×2 margins are the most common basic Fibonacci ratios. Other ratios are possible such as .236,.50,.382,618, etc.
Resistance and support levels
Fibonacci resistance levels are lines on a currency chart that have a price evaluated below the central price line named the support line. Likewise, Fibonacci support levels are lines on a price chart that have a price evaluated above the central price line named the resistance line.
The most commonly used Fibonacci indicators are the following:
Directional Movement Indicator (DMI)
The Directional Movement Indicator is a move-in indicator. It measures the strength of a particular trend and then displays this on a chart.
Time spent on the screen
The time spent on a currency trading chart indicator is a measure of a particular trader’s experience. The experience is displayed graphically on a chart. The experience will fluctuate from one trader to the other. Therefore, as time passes, the charts change and the charts take on a new meaning.
Most of the time, experienced traders don’t pay much attention to the indicators. They are mostly interested in the price chart. This is the reason most traders use Indicators as the basis of their trading plans.
Breakout trading strategy
Fibonacci support, resistance, and breakout trading strategy are the most popular and effective ways of trading. Traders who use this strategy enroll in programs that offer both basic and advanced training on this topic.
Simple and complicated
Traders who employ the Fibonacci trading strategy make things more simple and they profit from it by trading when the price approaches the support and resistance of a line. They sell when the price is near the limit and enter the trade when the price hits any level away from the limit which is also known as the stretch goal.
How to apply this to your trading plan
The good thing about this method of trading is that the direction of the line that is your limit is easily seen. This means that you know where you must stop and there is also a clear view as to where you should place your stop loss.
It is recommended that you only trade with the power of one single trade understanding. For every single trade, you will want to use a unique set of technical indicators that will help you break out of a range-bound market.
If you are looking to actively trade in the Forex market, you can employ this trading strategy.