Fibonacci Numbers

Fibonacci Numbers

Fibonacci Numbers

Fibonacci numbers are some of the most important trading tools you can use on a trading platform. Knowing what are they useful for and how to use them can improve your trading chances a lot. Fibonacci numbers are very important when you want to analyze time as an element of your trades and they can help you retrace market’s movements. However, there are some tricks to using them and in this article we will explain just that, but we will also advise you what to avoid when using it, so read on!

Fibonacci numbers | Fibonacci Time Zones

If you are going to trade binary options, you have to take the element of time into consideration and that’s exactly where Fibonacci numbers can be really helpful. Fibonacci Time Zones are vertical lines having denoting Fibonacci intervals (1, 2, 3, 5, 8, 21, etc.). Significant price changes are expected near these lines. If you want to build this instrument, you will have to specify two points to determine the length of a unit interval. All other lines are built on base of this unit interval according to Fibonacci numbers.

Another important thing to be mentioned when speaking about Fibonacci numbers is Fibonacci Retracement. It is the potential retracement of a financial asset’s original move in price. Horizontal lines are used to indicate areas of support or resistance at the key Fibonacci levels before the move continues in the original directions.

But there are some things you should definitely avoid when using Fibonacci numbers while trading and we will now talk about them some more, so stay with us!

Fibonacci numbers | What to Avoid

First of all, it’s important not to mix Fibonacci reference points. When fitting Fibonacci retracements to price action, it’s always good to keep your reference points consistent. It’s also very important that you don’t ignore long-term trends. Traders, especially rookies, usually try to measure significant moves and pullbacks in the short term. However, without a bigger picture, you won’t be able to come to the right conclusion. By keeping tracks of the long-term trend, you will be able to apply Fibonacci retracements correctly. Due to the market’s volatility, using Fibonacci numbers on a short period of time can sometimes be completely ineffective. Furthermore, do not rely just on these tools. Fibonacci can provide reliable trade setups, but not without confirmation. That’s why it’s good to combine Fibonacci numbers with Oscillators and Trend Indicators. That goes pretty much for every tool – don’t use it alone and try to extract as much information as you can from the data you get from all available tools.

Fibonacci numbers | Conclusion

As you can see, these numbers are easy to use and can improve your trading chances a lot. But you always have to know when to use them. It would also be very good that you combine Fibonacci with other tools: that way you will have better chance for a more accurate prediction. As you know, time is an immensely important element when it comes to trading, and this is exactly where Fibonacci numbers can help you most. It might seem complicated, but with just a little practice, you will be able to handle them with ease.

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FURTHER READING:

1. Common Stocks And Uncommon Profits (P. Fisher, 2003)
2. Stocks For The Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies (J. J. Siegel, 1994)
3. The Greatest Business On Earth: A Simplified Guide To Trading Commodity Options (J. Prince, 2010)
4. The Ultimate Trading Guide (J. Hill, G. Pruitt, L. Hill, 2010)
5. The Little Book That Beats The Market (J. Greenblatt, 2006)

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Author: Ben Prescott
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