There is saying in the Forex market, “Trend is your friend”. The price of the financial assets is always moving in favor of the long term trend, however, this trend is also subject to change. The nature of this market is very dynamic and without knowing the advanced stuff of this industry it’s really hard to make money. There are many traders who often think that this market can be easily traded but after try hard in the real account they say it’s not possible to make money in such high volatility. In fact, it’s true that 95 % of the traders in this industry are losing their money. So who are the 5 % people making tons of money? The simple answer is, smart traders. In this article, we will learn the perfect use Fibonacci retracement tools in Forex trading.
What is Fibonacci retracement tools?
Fibonacci retracement tools is a unique set of trading tools which helps the traders to find the major retracement levels of the trend. If you trade with a reputed broker like Saxo then you will have different types of Fibonacci retracement tools in your SaxoTraderGo platform. This tool is developed based on the Fibonacci series which is applicable in every aspect of our life.
Key Fibonacci levels
There are many retracement levels in the Fibonacci retracement tools. Most of the novice traders execute their trades in the all the retracement levels. But if you look an experienced professional then you will notice that every single one of them is only trading the 32.8%, 50% and 61.8% retracement level. However, among these three levels, 61.8% is the most effective level. If the price of certain breaks this level then we consider it as a sign of major trend change in the longer time frame.
How to trade the key levels
There are many of trading the key Fibonacci retracement levels. But the expert in the exchange traded funds community always uses the price action confirmation signal to place their trades in the market. Some of you might think that what price action trading system is. This is system is nothing but trading the key levels in the market using the different forms of the Japanese candlestick. Being new to this market it will be a complex thing for you to learn. But if you truly want to become a top trader in the world then you need to learn to interpret the pattern of the different candlestick.
After the price hit a certain Fibonacci retracement level, you can either execute your orders in favor of the market trend or wait for price action confirmation signal. If you use price action confirmation signal then you can easily use a tight stop loss. On the contrary, those who follow the aggressive way of trading usually put their stop loss just below the 61.8% retracement levels. Though this system is very profitable yet many traders say that they are not able to make a profit. This is only because they don’t use this retracement tools in the higher time frame. When you draw any retracement level make sure that you use the most recent swing and high for an uptrend .And in the case of down trend draw it from the most recent swing high to swing low.
Fibonacci trading is basically for the long term investors. But if you are not sure that you can use your demo account to practice this trading strategy. Being long term investors you must have a strong patience or it will be hard for you to wait for such a long time for a single trade setup. However you can also use this tools in the lower time frame but in that case, you will have to deal with lots of false trading signal. Last but not the least never risk more than 2 % in Forex trading.