Fibonacci levels
One of the important tools technical analysis are technical levels. This is a certain value of the price, which, when the course approaches it, will be an obstacle to further advance. Graphically, it looks like an area where the price came up and rolled back, then came up again and again could not overcome the resistance. There can be several such returns, and the more there are, the stronger the level is.
Distinguish support and resistance levels. Support is at the bottom of the price range, it keeps the rate from falling further down, and resistance prevents the price from moving up. There are always support and resistance levels for the current value. The main rule is that price is more likely to push back from a level than it is to break through one.
Experienced traders emphasize that level break It is also possible: it usually occurs on some strong impulse, for example, the release of important news, and then the price goes beyond the level by a large number of points. This is the basis of breakout techniques, but they are considered quite aggressive.
Fibonacci retracement levels When the price moves, they also provide resistance or support, but it is already partly a computer indicator. There is a certain dependence in its layout, which was deduced long before the appearance of а.
History of Fibonacci levels
Leonardo Fibonacci (12th-13th century) was an Italian mathematician who discovered a series of natural numbers that were in a certain relationship to one another.
The meaning of Fibonacci Dependence - each subsequent number is equal to the sum of the previous two. The series begins with zero and can be continued indefinitely: 0, 1, 1, 1, 2, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144...
It is interesting that Fibonacci's dependence was used in the famous book "The Da Vinci Code", where the main characters were guessing a cipher based exactly on this number series. And Fibonacci himself originally developed his dependence to find the formula for breeding rabbits.
Also Fibo numbers are related to each other and the "golden ratio". It is coefficient 0.618. Starting from the 4th term, each previous number is 0.618 times smaller than the next one. If we divide any term of Fibo's series not by the next number, but by the number through one, we obtain a ratio approximating 0,382. And if we take the third term of the series after the original one, the ratio between them will be approximately 0,236.
The mathematician did not discover this proportion, he only reminded mankind of it, because these dependencies were known and used even by the ancient Greeks for the construction of the Parthenon, by the Egyptians for their famous pyramids. If we look at the world around us, we find many fine examples of proportionality and harmony. The most striking demonstration of golden numbers is the number of petals in some flowers:
- Iris: 3 petals;
- Primrose: 5 petals;
- Wormwood: 13 petals;
- Nivianthus ordinary: 34 petals;
- Aster: 55 and 89 petals.
It is the closeness of the Fibonacci series to the "golden ratio" that led to the creation of a set of tools based on it for analyzing and predicting the market dynamics: fan lines, arcs, correction levels and Fibonacci time periods.
There are only seven levels of correction. There is also a "golden ratio" between them. If we multiply the level of 61.8 by 0.618, we get the level of 38.2. In total they give 100%. Levels 23.6 and 76.4 also add up to 100%.
Key levels - 38.2%, 50%, 61.8%, they will provide the most resistance and support for course changes.
These levels are used and to predict correction. If a correction begins, the pullback can be a third of the trend, it can be half, and the maximum size is up to 61.8%. If the price pulls back more than 60 % - it is not just a correction, but a reversal of the movement in the other direction.
Building Fibonacci levels
There are several rules for building Fibo correction levels. The levels are plotted between two key points and the previous trend is used, because the current movement is a correction to the previous one. I.e., if the rate is going up now, we will use the preceding downward movement as a basis for Fibo, and vice versa. Always working from the past to the future.
If the price goes beyond the levels 0% and 100%, we should look for other key points for the Fibonacci levels. If we do not find in the given timeframeIf we are working with the movements occurring in days, we can place the Fibo in weeks or months, i.e. in periods that will cover the movement we want. If we work with movements occurring in days, then Fibo can be placed in weeks or months, i.e. in periods, which in any case will cover the movement we need.
To decompose Fibo ruler, click the necessary button on the toolbar, find the first point, click the left mouse button and, keeping it pressed, drag Fibo to the second control point. The ruler itself will be automatically expanded in the chart.
Using Fibonacci levels in trading
In the movement of the course may not form any clear trend, there may be no technical figures, but there are always levels. And the trader should always put them out, so that he knows where he needs to fix the profit.
Fibo correction levels are very useful in this sense. First, they show the areas of resistance and support, and second, the possible size of the correction. At the same time, they are subject to all the rules of levels.
If you see that the price approaches a level, then there is a high probability of reversalIt is easier for the price to pull back than to try to overcome some obstacle. Accordingly, you can plan your next trade after the rate bounces off the level. In this case, the larger the timeframe this line is built, the stronger the resistance levels will be.
But the most important rule when working with Fibo levels is work towards the breakdown. If the level of 38.2% will be broken and the rate will fall lower, of course, we will sell. And then the target will be near 50%, in the value of 1.5210.
It is also necessary to consider the situation of a "false" breakdown, i.e. when the price seems to fall below the level, but then comes back and there is no breakthrough as such. Breaking Through The situation is considered when a new candle has fully opened and closed behind the key level. If only the spike went beyond the level, then we do not work on the breakout here. Therefore, we open transactions if the price falls below the previous spikes.
Another general rule for working with levels. Setting Take ProfitYour Take Profit should stand up to the level where the price was (where the spikes reached). Your Take Profit should stand up to the level, and there, where the price was still (where the spikes reached). А Stop LossOn the contrary, they hide them behind the levels (on the breakthrough of which they work), where there are no spikes, so that your Stop Loss is not caught by a random pullback.
When trading, the trader must necessarily take into account the possible resistance levels and support, a very handy tool for this is Fibonacci rule. At the same time, it allows you to see the possible sizes of the correction.
When the price approaches the level, there are two possible work options - to work on a breakout level or on a rebound, but whether it will be a deal to buy or sell, it is necessary to look at the specific situation.
Let's go over it again: Take Profit We put it up to the level, on the contrary, we hide the Stop Loss behind the support or resistance, so they won't be "swept away" by a random pullback.
Be sure to consider these points in trading - and then you will have good luck!