Hello dear blog readers!When I first started to learn to trade forex, Fibonacci associated me with something complicated and incomprehensible that the "smart guys" are used in the trade, but I certainly do not understand .And the most difficult I have called it the process of constructing Fibonacci grid on the chart - for some reason nowhere explanatory instructions at the time I did not find.In the following video I've tried to make it a guide to using the Fibonacci levels, which would be useful to me in the early stages.
In this video you will learn what the correct levels (recovery) and Fibonacci extension, how to use them to trade Forex, set goals and entry points into the market and, of course, how to build them directly on the chart.On the history of the golden section, the invention of Leonardo Fibonacci of his famous sequence and its reflection of the world around us is written a lot of books, there are a lot of materials on the Internet.Therefore, I did not focus on this aspect.
What is Fibonacci?
In the 13th century Leonardo Fibonacci introduced the world to a sequence of numbers where each next number is the sum of the two previous .The ratio of any of the previous sequence is approximately 1,618.This sequence is based on the golden section, which is represented in nature.For example, the human body in many ways is a sample of the golden section.Conch snails, plants and even inaccessible galaxy that is visible from space.
We are not going to focus on the golden section and the Fibonacci sequence in nature around us.You can read about this in various books or online, if you're interested.We find out how these numbers can help in forex trading.First of all let's talk about the internal Fibonacci retracement levels.
How to apply Fibonacci levels on the chart
for what they do in the forex?Imagine that we have some kind of trend.
We need to determine when it is better to just enter into this trend.FIBA correction levels enable us to identify potential levels where our correction of the upward trend will give way to the upward trend .Then we will be able to purchase and make a profit.
Let us assume that we have begun to move up:
We decided that now begin a bullish trend and now need to decide where to enter the market.
necessary to determine in advance where the correction is over.
For this we use the tool, which is called the Metatrader 4 Fibonacci line.
It is located by default in the toolbar:
You can find it in the menu "Insert - Fibonacci - The lines»:
to the trend of the rising, we need to note the lowest point, where the trend began:
and holding the mouse button to hold the net up to the point where, in our opinion, the correction began:
We get the levels of 38.2, 50, 61.80 and 78.6.Value - is the percentage of.If you take the whole segment, which we used for the construction of the grid, it will be 100%.Simply put the level of 38.2 - a 38.2% of the total length of the segment.
By default, the Fibonacci retracement levels will look like this:
We added level of 23.6, which I think is very small and I advise you not to use it to trade at all.Also there is no level of 78.6, because it is not part of the Fibonacci sequence, but it is the square root of 0.618, which is closely associated with this sequence.It is often at this level occur reversals, bounces, and therefore it should be taken into account.
How to set up a grid of Fibonacci levels?
To do this, the dotted red line, which represents a segment, you need to double click the left mouse button.Then on the dotted line will be the point:
Now you can win if the first time you are wrong it was built:
In addition, we can enter the settings menu by clicking on the point with the right mouse button and select "Properties Fibo... »:
appears plate settings:
there is a possibility to change the color of the display levels, remove one of the levels, or add it.
us find the unnecessary level of 23.6, and delete it.Now, this level will not be, and it will not hinder us.
Now add a level of 78.6%.To do this, click on the Add button:
In the Level write 0.786, and in the description of 78.6:
Click OK, and we can observe that disappeared levels 23.6 and came level of 78.6:
You can add your ownthe levels they see fit.This will set the grid entirely for themselves.
The practice of Fibo
So why do we need it?We see that the Fibonacci levels on the line - it is a potential correction levels and the return to trend.
We happened end of correction of 50%:
I think everyone understands that it's this candle with a very large tail was just a deceptive motion and acted as a "spring»:
Buteven if we consider its tail, it accounted for 61.8% of our existing segment.We can look for potential entry to the levels of the market 38.2, 50, 61.8 and 78.6.By themselves, they do not carry any super strong power, and simply opening buy orders when the price reached up to 38.2% or 50%, you will not achieve profitability in trading.
These levels should be used only in conjunction with other elements of technical analysis.For example, if you are trading on the chart pattern, the pattern formed is a pin bar can be considered as a point of entry, since it is based on the level of 61.8.Thus graphic figure gets a foothold, and we can open the deal to buy with a base in the form of a graphic pattern and a Fibonacci level.
And just because the price has reached a deal to open FIBA level is not necessary.
imagine that we entered into a transaction, something earned and the price moved higher, reaching a new high.What do we do next?
Just overtighten the net above a new maximum:
Minimum trend remains the same.
And again we get the levels to the end of the correction potential.As we can see in our price initially stalled at 38.2%:
And then reached the 50% level and the upward trend continued.As soon as the price reaches the level of 38.2%, this does not mean you have to immediately buy urgently:
you should use Fibonacci levels only in conjunction with any other trading indicators or strategies.
If you see that the price reaches Fib level and possible rebound, then you can purchase.And if there are no signals that are now going to happen, except that the price has reached the level correction, then do nothing.Fibonacci levels are a complementary tool, but in any case not the main one.
Let us examine another example, but with a downward trend.
In the very beginning the price went down, then slowed and began a correction.We need to determine where it could potentially end and at what levels we should look for an entry point into the market.
Select tool Fibonacci line.For the downward trend we need note mouse highest point, where the trend started, and hold the left button to bring our grid to the point where, in our opinion, has begun correction:
the first time the price strayed from the level38.2, a new low not drawn up and went back down to the level of 61.8.These levels are very exemplary and you have to understand that the price is not obliged to start from the lines that you drew and then rebound.Fibonacci - this is the level and not the line.
price reached a level of 61.8%, and drew the pin bar:
And then again moved downwards and drew new lows.Upon reaching a new low, we can drag our grid below:
And it is possible to see that the price is not reached to the level of 38.2, and went down:
Fibo levels is not always practiced.But either way, they should be taken into account because very often they play a good supporting role.It concerns all levels of correction.
But we also have a tool called the Fibonacci extensions.It helps to set goals.
Another example.Trend there and we need to know what goals and possible levels of profit, we should take if we are somewhere in the region to purchase and at what level should we look for signals to exit the transaction:
To construct Fibonacci Extensions, select "Insert- Fibonacci - Extension »:
to determine where we should go if we bought in this movement, we need to note the first section of the trend, that is, the first movement and the first correction:
note our progress and furtherBy clicking twice on the dotted line:
It is required that would point to the second line of the place where the end of the first correction:
We get the net, but it shows no potential levels, where the correction of the trend will end, and purposeto take profits.Which is based on the Fibonacci sequence.
As we can see from the default we are levels of 61.8%, 100%, 161.8%:
build these levels, based on length of the first section of the trend, deferred from the end point of the first correction:
in my opinion in the Fibonacci Extensions is to add a level of 50%, as it is often considered the price.To do this, clicking the mouse on the dotted line, choose "Properties Expansion» and add the same way as the Fibonacci lines on the instrument.
To add a level 50% press button to add and put this in the graph the level of 0.5, and in the description of the FE 50:
Thus, we create another level of 50%.As you can see below, Fibonacci Extensions quite accurately pointed out the point at which the correction started:
This is a good point to take profits and exit the market.The first point was reached at the rate of 50%, then was rolled back and there was a new level of approximately 60%.More accurately the market has reached 100% level, and again be a downward correction.That is not a smart way, we can use the Fibonacci sequence for the purposes of determining the trend.
Similarly, we can use the Fibonacci extension tool for setting goals on a downward trend.
find the first wave of the trend and the first correction.Using Fibonacci extension tool can build a grid to a potential point of profit-taking.
Upon reaching the level of 50%, nothing happened.At the level of 61.8% is slightly stalled, but some strong movements were not up.And then she fell to the level of 161.8%.As is the case with Fibonacci retracement levels, Fibo extension is only an auxiliary tool.They are good to set goals, but if you use them without combining with other elements of technical analysis, they do not bring you so much good.
Do not forget that the Fibonacci levels should not be used on their own, - you lose cleaned.They should be combined with other elements of technical analysis, such as indicators, trend lines, patterns, and so on Price ActionThis auxiliary tools and should be aware of this.