Fibonacci Retracements Strategy
This “natural” number sequence seems to have a life all of its own, but don’t worry, we are not talking about magic here. There is nothing esoteric about this strategy or it would not be used so widely amongst expert traders wishing to earn well. Just to clarify, Fibonacci retracements are a viable stock market strategy, but not suitable for those just starting out.
With this method of trading we divide our platform chart into 5/6 areas, using 5/6 horizontal lines. In these areas, the prices of the assets you are trading on will trace the distances (expressed in terms of a percentage) from the original movement.
The strength of this strategy lies in the very fact that in the markets it is often the case that prices have a strong tendency to retrace previous movements. This renders the patterns predictable and exploitable, giving us a greater advantage for investing on the market. Therefore, thanks to Fibonacci retracements, we can make an apt approximation of future price trends. The retracements are identifiable at all times, so it is up to the trader to then use the presented opportunities in the most advantageous manner. So, as mentioned, we can see 5/6 lines on the graph that represent possibile areas in which the price can retrace its original movement. It must be noted however that not even the Fibonacci method is always 100% effective because, just as with other trading indicators, it is based on a calculation of probability where the future price of an asset is based on its past behaviour.
Using Retracements In The forex / Stock Market
Any title or asset has a price that can be traced on a price chart within a certain timeframe. This makes it easy to identify the high and low points that the price has reached in a given time period.
The Fibonacci Retracements use the high and low points of every price to trace horizontal lines on the chart. The 100% line and the 0% line are drawn according to the lowest point and the highest point. Three additional lines are then drawn in the central part of the graph at 61.8%, 50% and 38.2%. These percentages have been calculated mathematically. It has been proven historically that, on the price of a stock, the support and resistance levels are typically at, or close to, these lines, allowing investors to better understand how to deal with the market. Since the percentage lines drawn on the chart help to predict where the changes will occur, they also help the trader predict the right moment to purchase a binary option.
As previously explained, Fibonacci retracements can be used primarily as support and resistance levels on the price chart, implying that by using 60 second binary options, many operations can be performed within a very short space of time. As can be seen in the image, the horizontal lines placed at the levels 0 and 100 cover the entire price range of this phase of the market, while the 4 central retracements define the movements of the price as true levels of support and resistance.
Now, depending on the price movements, each retracement will be regarded as a true and exact level of support or resistance for each case, after which a binary option investment for Call or Put that expires in 60 seconds can be taken.
Fibonacci Retracements Binary Options Strategy: Practical Advice
As you have come to understand, the Fibonacci Binary Options Strategy offers many advantages in our trading. In effect it is uncommon to see false signals, but the main thing is that, using this strategy allows for successful trades in an average of 75% of cases, which is more than enough to keep the balance of your operations in the positive.
Here are some tips in using the Fibonacci Retracements based strategy:
Avoid using the retracements as they appear on the chart, otherwise you run the risk of false signals.
Adapt the retracements to the trading chart and to the particular asset you have chosen to trade. This will become automatic with practice.
Choose lively assets that have a high coefficient of volatility and markets that have clear trends that can be easily read.
Fibonacci and Money Management
Although the strategy based on Fibonacci retracements is rather reliable and easy to use, once mastered, every good trader must consider the management of their trading capital rationally. There are many strategies to work with in trading and while all are valid, their effectiveness can be cancelled out by the improper management of your capital in the stock market.
A golden rule in trading, that experts know very well, is that of spreading their capital over the largest number of trades, many in fact. By applying confirmed strategies, profits come in copious amounts and in a practically automatic manner. So remember, do not invest more than 5% of your total capital per trade, and even less if you have a large sum of money as your capital. The gains will come in the end, always, and we must not be greedy by taking trades that can earn amazingly high figures but risk the safety of our investment capital!
As we have explained, the binary options market trading strategy using Fibonacci Retracements is not one of the most suitable for a novice trader. Therefore, before using this strategy, we always recommend performing tests through a broker. Your own trusted broker can in fact provide you with a demo account that uses a complete trading platform. On this platform you can play around with virtual money trying out any strategy you like, including the Fibonacci strategy. Always keep in mind the importance of practice, as it provides you with the experience that you require to give you profitable investments consistently over time.