How to draw Fibonacci is something many investors are interested in today. The term Fibonacci is no longer strange to investors. In the world of cryptocurrency and forex, Fibo is applied by many traders when doing technical analysis. learn more details about how to use this tool with Forex Trading.
How to draw Fibonacci? Learn more about Fibonacci
The Fibonacci tool is used by traders to identify support and resistance levels. This helps investors set stop loss and take profit points more accurately.
Fibonacci Basics
what is the Fibonacci sequence? This is an infinite sequence of numbers discovered by an Italian mathematician. They start with 0 and 1. Subsequent pairs of numbers are the sum of the previous two numbers. An example of a number sequence is as follows: 0,1,2,3,5,8,… If you take the ratio of any two consecutive numbers in the sequence, the result is approximately 1.618. This is an indicator of the golden ratio. The higher the two consecutive numbers, the more accurate the golden ratio.
Fibonacci calculation formula that investors need to know
Currently, there is no fixed formula for the Fibonacci sequence. Instead, it is a series of numbers in which the numbers tend to have a close relationship with each other. The price must be confirmed when the action exceeds the Fibo level. However, before that, investors sometimes did not know what level was significant. That’s why investors need to wait more to monitor transaction prices.
See more: Profession forex trade thanks to Fibonacci applying
Detailed instructions on how to draw Fibonacci for investors
With Fibonacci retracement and Fibonacci extension, there will be different drawing methods. Accurately drawing the Fibo line requires traders with high expertise and experience. Because choosing the wrong starting time and ending time will affect each person’s profit.
To draw a Fibo retracement, investors can start by zooming out to the weekly price charts. Besides, you can also find the longest increasing or decreasing trend. Set Fibo levels from low to high in an uptrend. And set the Fibo level from high to low if in a downtrend.
With Fibo expanding, a downward reversal will be a process. Fibo extension starts from the top and bottom until they are broken. They start with the initial price of the line and will extend lower when including the Fibonacci sequences.
Fibonacci series tools used in technical analysis and trading
Drawing Fibonacci is not too difficult, but it requires investors to have a certain meticulousness and expertise. Using Fibonacci in technical analysis and trading will help investors identify support and resistance levels.
Using Fibonacci retracement for investors
Fibo retracement will help investors identify price levels at which prices are likely to reverse. Using Fibo retracement, investors will determine whether the trend is up or down. If it is an uptrend, it is only a temporary decrease and is likely to continue to increase. If it is a downtrend, it means it is a temporary increase and will likely decrease further in the future.
Fibonacci retracement helps investors clearly identify that temporary point and enter a trade. When using Fibo retracement, investors need to follow the instructions to have a good entry point as well as minimize risks.
How to draw Fibonacci extended time format
How to use Fibonacci in extension form is best when it is worked at ratios that have been built up from the retracement trading range. For an uptrend, the Fibo extension level is determined from the bottom of the chart’s range. And they are extended until the breakout and this also marks the peak of the chart.
The downward reversal of this process starts at the top and continues until the breakout. The investor can then mark the bottom in the range area. Keep clicking once to be able to draw this line and then the second line will appear. Stretch it further until the Fibonacci ratio is included.
Fibonacci retracement and how to find reversal points
To better understand how to draw Fibonacci in both uptrends and downtrends, let’s follow the detailed example for each case below.
How to draw Fibonacci and analyze when the market is in an uptrend
Below is an example of an AUD/USD chart. The Fibo retracement level is drawn from the bottom at 0.6955 on April 20. Then on June 3, it was pulled to the peak at 0.8624 points. The Fibo retracement levels are 0.7955 points, 0.7764 points, and 0.7609 points respectively.
Investors can expect AUD/USD to correct at the nearest peak and will find support at one of the Fibo retracement levels. Investors will place buy orders at these levels and then wait for the market to rebound.
Next, look at the chart when a peak occurs.
The price was adjusted down by 23.6% but continued to decline over the next few weeks. Even tested the 38.2% area again but did not close at that price. On July 14, the price continued to increase. At this time, if you buy in the 38.2% long-term area, you will make a profit.
What is Fibonacci retracement analysis in an uptrend
To better understand how to draw Fibonacci retracements in a downtrend. Let’s look at the 4-hour chart of the EUR/USD currency pair. Looking at the chart, we can see that on January 25, there was a peak at 1.4195 points and a bottom at 1.3854 on January 2.
The ratio of Fibo retracement levels is 1.3933 points; 1.3983 points; 1/4023 points. Investors expect a downtrend if prices fall from the bottom. It could recover and hit resistance at one of the Fibo levels. At this time, investors can completely place sell orders.
Looking at the next picture, we can see that the market has recovered. Currently, the price is around 38.2% and a little at 50%. From there, it can be inferred that if you sell in the range of 38.2% to 50%, you will achieve better profits. One thing investors must remember is that prices do not always bounce back from these levels. Remember that using the Fibo tool is not always easy.
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Conclude
Above is the basic knowledge about how to draw Fibonacci that Forex Trading sends to everyone. Fibonacci is an indispensable tool if investors want to make more profits in the market. Like other indicator tools, Fibo will help investors find more accurate order placement points. What are you waiting for? Start investing in foreign exchange with Fibonacci right away.
FAQs
Is the Fibonacci tool a prediction tool?
Fibonacci is a measure, not a prediction tool. You need to predict the trend in advance and then use Fibo to measure it.
Can you use Fibonacci if you predict a wrong trend?
If the trend is wrongly identified from the beginning, then using Fibo is completely meaningless.
When trading Scalping Trading, can Fibonacci be applied?
When trading, investors can completely apply Fibo on the M1 and M5 frames
