Hi Adventurous Traders!
So far over the last few weeks we have discussed and discovered how to put together a basic system in which to analyze markets both outside of forex and even within the FX realm.
One important piece of this technical charting is Fibonacci.
What is Fibonacci?
Fibonacci is a great tool as it uses ratios to view the market and since so many traders also use it, it works very well in identifying important areas of support and resistance.
I highly recommend you do a little research on your own around the web to see how Fibonacci doesn’t just apply to financial markets but also to so many things in life. Here is a great explanation about this fascinating subject.
It essentially describes the ratios in the world that we live in, from ocean waves to flowers themselves. There is a certain rhythm and harmony in all things and what Fibonacci does is apply the mathematical principles to understand it. I personally cannot do it justice in describing it, so I recommend doing some very interesting research and reading of your own.
How does Fibonacci apply to trading?
What I can do, however, is show you how Fibs apply to your trading. We can use them to identify important levels of support and resistance that we can then use in our trading to allow us to map out the potential market in the future. The better your Fib levels are, the more powerful they will work.
Keep in mind that proper “Fibbing” takes practice and is both an art as well as a science. The best way I have found to apply it is to put the top and bottom of the Fib Retracement tool in MT4 to the top and bottom of a defined move in the market. The higher the timeframe, the more likely the fib levels will see some serious reaction. Keep practicing and you will see that this tool can be used on multiple timeframes and serve multiple purposes, from stop protection, to trade management, to proper trade planning ahead of time. The video I have created should get you started in your venture to apply fibs to your own chart – enjoy!
The first video (by our own Marc Walton) explains more about the background and basics.
In the second video I will show you how I use Fibonacci.
Fibonacci Placement and Usage Video Basics: