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Do you know almost all perfectional trader use Fibonacci indicator for finding buy and sell signals
What is Fibonacci indicator?
The Fibonacci indicator is a technical analysis tool used in finance to identify potential levels of support and resistance in an asset's price movement. The indicator is based on the idea that prices will tend to retrace a predictable portion of a move, after which they will continue to move in the original direction. This predictable pattern is related to the Fibonacci sequence, a series of numbers in which each number is the sum of the two preceding numbers (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.).
In financial markets, the most commonly used Fibonacci ratios are 23.6%, 38.2%, 50%, 61.8%, and 100%. These ratios are derived from dividing one number in the sequence by the number that is located two places to the right. For example, 21 divided by 34 gives us 0.6176, which is 61.8%. These ratios are then applied to the vertical distance between a high and a low on a price chart to project possible levels of support and resistance.
The Fibonacci indicator is often used in combination with other technical analysis tools, such as trend lines and moving averages, to help traders make decisions about buying and selling assets. However, it is important to note that the Fibonacci indicator is not a guarantee of future market behavior and should be used as just one piece of a larger investment strategy
Fibonacci indicator formula
The formula for the Fibonacci indicator involves calculating the key Fibonacci levels based on the vertical distance between a significant high and low point (swing high and swing low) on a price chart. The formula for each of the key levels is as follows:
- 23.6%: (swing high - swing low) x 0.236 + swing low
- 38.2%: (swing high - swing low) x 0.382 + swing low
- 50%: (swing high - swing low) x 0.50 + swing low
- 61.8%: (swing high - swing low) x 0.618 + swing low
- 100%: (swing high - swing low) x 1 + swing low
Once these levels are calculated, they are then plotted on the price chart as horizontal lines. Traders can then observe the price action of the asset and look for potential levels of support or resistance. If the asset's price approaches one of these levels and starts to stall or reverse, this may be interpreted as a sign that the asset is reaching a key level of support or resistance, and the trader may consider taking action accordingly.
How Fibonacci Indicator works
The Fibonacci indicator works by plotting horizontal lines at key levels derived from the Fibonacci sequence on a price chart. These levels are calculated based on the vertical distance between a significant high and low point, known as a swing high and swing low, respectively. The indicator then projects the key Fibonacci levels (such as 23.6%, 38.2%, 50%, 61.8%, and 100%) by dividing the vertical distance between the swing high and low by key ratios derived from the Fibonacci sequence.
Once these levels are plotted on the price chart, traders can then observe the price action of the asset and look for potential levels of support or resistance. If the asset's price approaches one of these levels and starts to stall or reverse, this may be interpreted as a sign that the asset is reaching a key level of support or resistance and the trader may consider taking action accordingly.
It's worth noting that while the Fibonacci indicator can be a useful tool in technical analysis, it is not a guarantee of future market behavior and should be used in conjunction with other analysis tools and methods. Additionally, the indicator is based on the idea that markets move in predictable patterns, which is not always the case. As with any investment strategy, it's important to approach the use of the Fibonacci indicator with caution and to understand the risks involved.
When Fibonacci indicator generate Buy or Sell signal
The Fibonacci indicator by itself does not generate buy or sell signals. Instead, it is used to identify potential levels of support and resistance in an asset's price movement. Traders can then observe the price action of the asset as it approaches these levels, and use this information to inform their trading decisions.
For example, if an asset's price approaches a key level of support identified by the Fibonacci indicator and starts to stall or reverse, this may be interpreted as a sign that the asset has found support at that level and the trader may consider buying the asset. Conversely, if an asset's price approaches a key level of resistance identified by the Fibonacci indicator and starts to stall or reverse, this may be interpreted as a sign that the asset has found resistance at that level and the trader may consider selling the asset.
It's worth noting that while the Fibonacci indicator can be a useful tool in technical analysis, it is not a guarantee of future market behavior and should be used in conjunction with other analysis tools and methods. Additionally, the indicator is based on the idea that markets move in predictable patterns, which is not always the case. As with any investment strategy, it's important to approach the use of the Fibonacci indicator with caution and to understand the risks involved.
Trading using the Fibonacci indicator typically involves the following steps:
Identify a significant trend: To use the Fibonacci indicator effectively, it is important to first identify a significant trend in the asset's price movement. This trend can be either up or down and is typically defined by a series of swing highs and swing lows.
Plot the Fibonacci levels: The next step is to plot the key Fibonacci levels (such as 23.6%, 38.2%, 50%, 61.8%, and 100%) on the price chart based on the vertical distance between the swing high and low.
Observe price action: Once the Fibonacci levels are plotted, traders can then observe the price action of the asset and look for potential levels of support or resistance. If the asset's price approaches one of these levels and starts to stall or reverse, this may be interpreted as a sign that the asset is reaching a key level of support or resistance.
Consider taking action: If a key level of support or resistance is identified, the trader may consider taking action based on their trading strategy. For example, if the asset's price approaches a key level of support and starts to stall or reverse, the trader may consider buying the asset. Conversely, if the asset's price approaches a key level of resistance and starts to stall or reverse, the trader may consider selling the asset.
How to add Fibonacci in trading view
- Open TradingView: If you don't have trading view account then you can make one by visiting tradingview.com. and download Trading view application
- Load the price chart: Load the price chart for the asset you want to trade in TradingView.
- Identify swing high and swing low: Identify the swing high and swing low on the price chart that you want to use as the starting and ending points for the Fibonacci calculation.
- Add the Fibonacci retracement: Press Alt+F, This will bring up the settings for the Fibonacci retracement.
- Configure the Fibonacci retracement: In the settings, select the "Retracement" option and choose the starting and ending points for the calculation by clicking on the swing high and swing low on the price chart. You can also choose which Fibonacci levels you want to display, such as 23.6%, 38.2%, 50%, 61.8%, and 100%.
- Apply the study: Once you have configured the Fibonacci retracement, click the "Apply" button to add the study to the price chart. The Fibonacci levels will be plotted on the chart as horizontal lines.
Best Fibonacci Retracement levels
There is no universally "best" Fibonacci retracement level. The levels that are considered most important can vary depending on the specific market and the asset being traded, as well as the individual trader's personal preference and trading strategy.
Typically, the Fibonacci retracement levels of 23.6%, 38.2%, 50%, 61.8%, and 100% are the most commonly used levels in technical analysis. Of these, the 61.8% level is often considered the most important as it is thought to represent the key level of support or resistance. Its is a vise choise to confirm the retracements here are some ways to confirm a retracement in a Fibonacci level:
Price action: One of the most common ways to confirm a retracement in a Fibonacci level is to observe the price action of the asset as it approaches the level. If the price stalls or reverses at a Fibonacci level, this may be an indication that the level is acting as a key level of support or resistance.
Volume: Another way to confirm a retracement in a Fibonacci level is to look at the volume of the asset. If the volume increases as the price approaches a Fibonacci level, this may be an indication of increased buying or selling pressure and could help confirm the retracement.
Moving averages: Another way to confirm a retracement in a Fibonacci level is to look at the moving averages of the asset. If the price approaches a Fibonacci level and the moving averages also stall or cross, this may be an additional confirmation of the retracement.
Candlestick patterns: Another way to confirm a retracement in a Fibonacci level is to look for candlestick patterns such as dojis or hammer candles that form near the level. These patterns can indicate a potential reversal in the trend.
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