Hey traders,
In this article, we will discuss 3 classic Fibonacci tools you must know for trading different financial markets.
1️⃣Fibonacci Retracement
Fib.Retracement is my favorite fib.tool. It is aimed to identify strong horizontal support and resistance levels within the impulse leg.
We draw this tool based on the high and low of the impulse (from wick to wick) and it shows us POTENTIALLY strong structure levels determined by Fibonacci numbers.
Common Fib.Retracement levels are: 0.382, 0.5, 0.618, 0.786.
Once one of the levels is reached, wait for a confirmation before you open a trading positions.
Above is the example of an application of a fibonacci retracement tool based on a bearish impulse leg on EURUSD.
2️⃣Fibonacci Extension
Fib.Extension indicates strong horizontal support and resistance levels beyond the impulse. Similar to Fib.Retracement tool, Fib.Extension is drawn relying on impulse's high and low (from wick to wick) and it shows POTENTIALLY strong structure levels where the consequent impulses may complete based on Fibonacci number.
Common Fib.Extension levels are: 1.272, 1.414, 1.618.
Once one of the levels is reached, wait for a confirmation before you open a trading positions.
Above is the example of fibonacci extension tool based on USDJPY based on a bullish impulse leg.
3️⃣Fibonacci Channel
Fib.Channel shows strong vertical supports and resistances (trend lines) within the channel. The tool is drawn based on the trend line of a valid parallel channel (based on wicks) and it shows POTENTIALLY strong trend lines from where the market may retrace.
The trend lines within Fib.Channel rest on 0.382, 0.5, 0.618, 0.786 Fib.Levels.
Once one of the levels is reached, wait for a confirmation before you open a trading positions.
Above is the example of a fibonacci channel on USDCHF.
Remember that Fibonacci's are simply tools in a toolbox. In order to use them properly, you need to build a trading system around them, test it and confirm its efficiency.
