Fibonacci Pivot Point
Fibonacci instruments are very popular among the traders on the currency
market. The developments of the famed Italian mathematician are widely
used for analysis on the fond and trade markets, as well as on the Forex
market. Fibonacci has come to the sequence, in which every next number
is the sum of the two previous ones – 2, 3, 5, 8… Noteworthy, in case
you divide practically any number from this series on the previous one,
than the result will be equal to 1.618.
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Instruments, based on the sequence, which Italian mathematician has
described, are widely used during the trading process. Most popular are
Fibonacci Pivot Points. For the convenience, numerical ratios are used
in percents. Correction levels have the following values: 23.%, 38.2%,
61.8%, 76.4%, extension levels – 138.2%, 161.8%.
Fibonacci Pivot Points are rather effective and used widely to build different trading methods on Forex.
Fibonacci Pivot Point
is the built-in instrument in the popular MetaTrader platform. To apply
points on the chart on the certain trading instrument, you need to
choose "Insert" - "Fibonacci" - "Fibonacci level". There are many
services that allow you to calculate Fibonacci Pivot Points number
values in the Internet.
Features of the construction
The net with Fibonacci points is being built on 2 pivot points.
Significant extremes on the chart are better to be chosen as the points.
First, you have to define dominant trend, after that you have to
stretch between minimum and maximum the Fibonacci points. If the trend
is upward, then the initial point (100%) is located on the minimum, and
the final (0%) – on the maximum. If the trend is downward, then 0% will
match to minimum, and 100% - to maximum.
Using of the Fibonacci Pivot Points in the trading.
As you know, any directed price movement practically always is
accompanied by rollbacks and correlations. With the help of the
Fibonacci Pivot Points it’s very comfortable to determine the trend
strength on the Forex market, as well as to find resistance and support
levels. In case of the price approximation to the Fibonacci pivot point,
you can predict possible changes of movement direction. Initial levels
of the correlation are 23%, 38%, 50%, 62%, 74%. The more the correlation
is, the less is the trend strength.
Upon the placement of the Fibonacci Pivot Points on the charts you can
see, how high the efficiency of this instrument is in the search of
important points. Usually, many of important price levels are the same
as Fibonacci Pivot Points. With the help of the Fibonacci net you can
place take profit and stop loss orders. It’s better to place stop losses
over the Fibonacci levels, to escape the backing-out. To place take
profit, you can use expansion levels. In this case it’s better to place
order a little bit closer to the level in order to increase to
possibility of its execution.
Fibonacci Pivot Points are rather effective and used widely to build
different trading methods on Forex. Despite the fact that this
instrument does not allow to predict all price movement with 100%
confidence. For example, price does not always stop after correction 23%
or 38%, and for some markets very deep (even to 76%) rollbacks are
usual.
While working with the Fibonacci Pivot Point you have to follow next important rules:
- It is important to use the system of money and risk management.
It’s necessary to place the stop losses or even to use other methods of
the restriction of the losses (locking, hedging etc.)
- You should take into consideration the features of the certain
markets, where you conduct trading. For example, stock market is
characterized with rapid trend moving and small (till 38%) correlations.
If we are talking the Forex market, we can say, that movements of the
trade on the currency pairs are often accompanied with serious
rollbacks.
- Ideally, Fibonacci Pivot Points have to be used with other methods
of the analysis and forecasting of the finance instruments behavior.
It’s better to use Fibonacci Pivot Points on the charts from h1 and
higher. The higher is the timeframe, the stronger will the signal be.
You can place several Fibonacci nets on the chart in order to find most
significant levels. In order to see the difference in them, it’s enough
to use different colors and the construction thickness.