Candlestick Reversal Patterns Forex
Using Fibonacci in Forex Trading System
Fibonacci analysis is a well known and used technical analysis tool, used by traders to calculate on all possible target points of entry and exit, and identification of potential support and resistance levels. The idea behind the decreases of Fibonacci suggests that the price of any currency or market is often observed travel a certain percentage of a previous motion, and find support or resistance in major Fibonacci levels before continuing in its original direction.
What makes this particular indicator than most, it is known as a major 'indicator', not lagging. In other words, it has predictive powers, unlike other technical indicators that are informative exchange trend, after it already has occurred, Fibonacci levels show possible changes before they occur.
These levels are formed by drawing a trendline between two extreme levels (high and low) of a main market move, dividing the vertical distance of the main Fibonacci ratios of 23.6% 38,2%, 50%, 61.8%, 78.6% to 100%.
Most good charting packages have the capability to do this automatically for you. By example, in Metatrader, all you have to do is this: First you choose a primary market movement, select the Fibonacci button (the one with a couple of lines horizontal in it, together with the letter "F"), hold the mouse button and drag the line from the bottom of the main movement, the peak more recent (for uptrends). In the market movements which are moving downward to apply the Fibonacci tool from the summit of the move. MetaTrader automatically draws in horizontal lines in the levels of major Fibonacci retracement.
You may have heard of a famous trader by the name of William. D. Gann who carried out the fibonacci levels in their trade, they also mentioned in his books and courses. At all levels spoke, was the most significant in the level of decrease of 50%. He even went as far as saying, "you can make a fortune trading this level one." (How to make profits in the Products Basic). Upon hearing this so widely known and very successful trader should not be taken lightly. Although this book was on commodities trading, many traders use the same principles today in markets around the world, including the foreign exchange market.
"How can Fibonacci retracement levels are used?
So the question is, can the carry trade based on Fibonacci levels alone? The fact is that it is very difficult to determine at what level of Fibonacci retracement prices retrace. That's why the currency trading systems using Fibonacci also incorporate the use of other indicators or price action. For example, you I had to point out that two other indicators are indicating a reversal, while the price is close to the retracement level of 61.8%, this may give extra confidence a change in trend is about to occur.
Or, you could observe a candlestick reversal pattern occurring at a key Fibonacci retracement level. By example, if a shooting star was formed at a retracement level of 61.8%, this would indicate that prices have reached a level of natural resistance and price action you are saying it is time for a change.
Conclusion
As pivot points, Fibonacci retracement levels can act as a useful guide to identify possible points of reversal. But keep in mind that this is just a tool, and should not be used alone. By combining the power of Fibonacci retracement levels techniques along with their tools, you should be able to develop a system of sound currency trading and add confidence to make a transaction.
About the Author
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