The sequence of fibonacci extension numbers used in trading fibonacci are 0, 0.382, 0.618, 1.000, 1.382, and 1.618. These numbers are used as profit taking levels. Mostly all trading platforms these days has fibonacci extension tools. Traders will enter into a trade on a dip and then look for one of these levels as a profit taking level. This method of taking profit can be very effective because many traders use it so many traders will stay in a trade long enough to at least look for the first extension level, thus carrying the price to that level.
The more popular use of the fibonacci sequence in trading fibonacci is the set of fibonacci retracement numbers, which are 0.236, 0.382, 0.500, 0.618, and 0.764. Traders use these numbers to determine support and resistance levels. For example, lets say a currency pair is making a run toward the top side, with the first currency in the pair increasing in price. As the pair hits its peak it will either enter a range or consolidate toward the downside. If the pair makes a consolidation toward the downside, a lot of traders will look for it to hit one of the fibonacci retracement numbers before it either ranges or heads back toward the top. Again, this method of trading can be very useful due to the fact that a lot of traders use it.
There are a lot of traders, especially in the forex market, using fibonacci trading. The more traders using a particular trading indicator, the more price action there is in favor of that indicator, the more money you make! Other than learning how to spot these trades, there is an easier way to do things.
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