# Three Fibonacci Rules For Binary Options Traders

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Leonardo Pisano Bogollo, an Italian mathematician, first introduced the Fibonacci sequence to the West in the 13th century. These strings of numbers contain unique mathematical properties and ratios which can be found – to this very day – in nature, architecture and biology. The wide-ranging presence of these ratios in the Universe also extends to the financial markets. It’s just one reason why many traders use a Fibonacci trading strategy to identify turning points in the market, and why you should consider it too.

In this article, you will learn the unique properties of the Fibonacci sequence in Forex trading, as well as how to use Fibonacci levels across different markets through a Fibonacci trading strategy. You will also learn specific techniques on trading Fibonacci by using Fibonacci retracement levels and Fibonacci extension levels and how to get started on an advanced, free to use Fibonacci trading software. Let’s get started!

Before we look into the mechanics of Fibonacci trading and how it translates into a Forex Fibonacci trading strategy, it is important to understand the Fibonacci sequence and the unique mathematical properties it provides first.

#### Understanding the Fibonacci sequence in Forex trading

The Fibonacci sequence is a sequence of numbers where, after 0 and 1, every number is the sum of the two previous numbers. This continues to infinity.

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, 6765….

There are some interesting relationships between these numbers that form the basis of Fibonacci numbers trading. While we cannot cover all of these relationships in this article, below are the most important ones you will need to know about when we look at a Forex Fibonacci trading strategy later on:

• If you divide a number by the previous number it will approximate to 1.618. This is used as a key level in Fibonacci extensions as you’ll learn later on in the article.
• If you divide a number by the next highest number it will approximate to 0.618. This number forms the basis for the 61.8% Fibonacci retracement level.
• If you divide a number by another two places higher it will approximate to 0.382. This number forms the basis for the 38.2% Fibonacci retracement level.

1.618 is known as the Golden Ratio, Golden Mean, or Phi. The inverse of this is 0.618 and both numbers are found throughout nature, biology and in the cosmos. In fact, according to William Hoffner from the Smithsonian Magazine in December 1975: “The proportion of .618034 to 1 is the mathematical basis for the shape of playing cards and the Parthenon, sunflowers and snail shells, Greek vases and the spiral galaxies of outer space. The Greeks based much of their art and architecture upon this proportion.”

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So, how are the Golden Ratio and other Fibonacci levels used in Fibonacci trading? Firstly, these ‘special’ numbers are split into Fibonacci retracement levels and Fibonacci extension levels which then provide values where possible turning points could take place in the market. Let’s have a look at these in more detail.

## How to use Fibonacci retracement levels

Fibonacci retracement levels help to provide price levels of support and resistance where a reversal in direction could take place and can be used to establish entry levels. The retracement levels are based on the prior move in the market:

• After a big rise in price, traders will measure the move from bottom to top to find where price could retrace to before bouncing higher and continuing in the overall trend higher.
• After a big fall in price, traders will measure the move from top to bottom to find where price could retrace to before correcting lower and continuing in the overall trend lower.

Before we go through how to use Fibonacci trading software and Fibonacci indicators to help identify these retracement levels, it can help to view the pattern visually which is shown below:

Earlier, we calculated the relationship between the Fibonacci sequence to identify some important Fibonacci ratios such as the 0.618 (which forms the 61.8% Fibonacci retracement level) and the 0.382 number (which forms the basis of the 38.2% Fibonacci retracement level).

There are also other Fibonacci trading ratios that traders use such as 23.6% and 78.6%, among others. The four listed in the diagrams above are the most commonly used Fibonacci retracement levels.

• The buy pattern is used when the market is an uptrend. Traders will attempt to find how far price retraces the X to A move (swing low to swing high) before finding support and bouncing back higher (B). These support levels are the Fibonacci retracement levels and could be a 23.6%, 38.2%, 61.8% or 78.6% retracement of the X to A move.
• The sell pattern is used when the market is in a downtrend. Traders will attempt to find how far price retraces the X to A move (swing high to swing low) before finding resistance and correcting back lower (B). The B point could be any one of the Fibonacci retracement levels already listed.

It is common for traders to use other technical analysis tools such as trading indicators or price action trading patterns for confirmation of which Fibonacci retracement level price may turn. This is covered in more detail later on in the Forex Fibonacci trading strategy section.

If you’d like to learn more about technical tools that can help with identifying Fibonacci retracements, take a look at the webinar below, which covers how to use basic Fibonacci retracements and extensions in MetaTrader 4

This webinar is from our Trading Spotlight webinar series where three pro traders offer live sessions three times a week. Just some of the topics they cover include how to do technical analysis, how to identify common chart patterns and trading opportunities and how to implement popular trading strategies. To reserve your spot in these complimentary webinars, simply click on the banner below:

Before we look at how to calculate Fibonacci retracement and extension levels and how to use the Fibonacci retracement tool in your trading software, let’s look at what exactly Fibonacci extension levels area.

## How to use Fibonacci extension levels

Fibonacci extension levels also help to provide price levels of support and resistance but are used to calculate how far price may travel after a retracement is finished. In essence, if Fibonacci retracement levels are used to enter a trend, then Fibonacci extension levels are used to target the end of that trend.

As previously discussed the 1.618 is a key number in the Fibonacci sequence which is why it is called the Golden Ratio. This forms the basis of the most popular Fibonacci extension level – the 161.8% level.

In an uptrend, traders will attempt to enter the ‘bounce’ at point B and then measure the last retracement from A to B, to find how far the trend could go before reaching point C – the 161.8% level.

In a downtrend, traders will attempt to enter the ‘correction’ at point B and then measure the last retracement from A to B, to find how far the trend could go before reaching point C – the 161.8% level.

So far, you have learnt that Fibonacci retracement levels are used to find support and resistance levels to enter a trade in the direction of the preceding trend. Fibonacci extension levels are used to calculate how far the trend could go before reversing and are used as exit levels.

Now you know what type of visual pattern and cycle, or wave, formations you are looking for how do we plot this on the price chart of a market to find entry and exit levels? You need some Fibonacci trading software. The good news is that Admiral Markets provides this to its traders for free!

## Fibonacci trading software and the Fibonacci indicators

When using Fibonacci trading software, there are two different types of Fibonacci indicators that can help traders plot retracement and extension levels. All the trader needs to do is measure the X to A cycles as shown in earlier examples and will be explained in more detail in the next few sections.

Once the trader has measured the X to A distance using the Fibonacci tool, the software will then divide the vertical distance by the Fibonacci ratios (23.6%, 38.2%, 61.8%, 78.6%, etc) to plot the Fibonacci levels. This means that you do not need to learn how to calculate Fibonacci retracement and extension levels manually as the software will plot it for you – making it a huge time saver!

An example of the MetaTrader 5 trading platform provided by Admiral Markets showing the price chart of EUR.NZD, a trading ticket window, the Market Watch column, the Toolbox window, the different Fibonacci tools available and an example of Fibonacci retracement levels on price.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

The MetaTrader 5 trading platform offers traders the ability to trade on multiple asset classes and provides more features than MetaTrader 4 such as a wider range of chart timeframes and styles. To start using the full range of Fibonacci indicators and to follow through the live trading examples in the next few sections, click on the banner below to start your free download.

## How to use the Fibonacci retracement tool in MetaTrader

Before we look at how to use the Fibonacci retracement tool in your MetaTrader trading platform, let’s first set up the correct Fibonacci levels using the following steps:

1. From the top menu, select Insert -> Objects -> Fibonacci. This will show the following Fibonacci indicators:
1. The Fibonacci retracement tool is used to plot both Fibonacci retracement levels and Fibonacci extension levels. After selecting Fibonacci Retracement, your cursor will change from an arrow to a plus sign with some small horizontal lines beneath it.
1. After you click on the chart then you will find a box pop up which allows you to customise your Fibonacci levels, as shown below:
1. The ‘level’ column is the Fibonacci ratio derived from the Fibonacci sequence. The ‘description’ is how it translates into a Fibonacci level for trading. While there are different Fibonacci ratios the most commonly used are:
1. Some of these levels and descriptions may not be in your trading platform. To add them, simply click the Add button on the right.

Now let’s look at how to plot Fibonacci levels on to your chart and what they actually mean.

## Drawing Fibonacci retracement levels in an Uptrend

1. Find the X to A cycle which is one big cycle, or wave higher.
2. Select the Fibonacci Retracement tool from the top menu: Insert -> Objects -> Fibonacci -> Fibonacci Retracement.
3. Left-click and hold down at the bottom of the cycle, X.
4. While holding the mouse button down, drag the line to the top of the cycle, A.
5. The Fibonacci indicator will automatically draw the Fibonacci retracement levels on, as shown below:

An example of the MetaTrader 5 trading platform provided by Admiral Markets showing Fibonacci retracement levels drawn on using the Fibonacci retracement tool in an uptrend.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

In the price chart above, the Fibonacci levels are plotted as horizontal lines with the Fibonacci descriptions written on the right side of the chart. You may have noticed that the X level is plotted as 100 and the A level is plotted as 0. This is because if the price retraced from point A all the way back to point X it would be a 100% retracement.

This also means that when price retraces to the 38.2 level – for example – it means that price has retraced 38.2% of the X to A move. In an uptrend, these Fibonacci levels provide areas of support where the market could bounce higher and continue the trend up. In the example above price did indeed find support at the 38.2% Fibonacci level. Traders will then look at other technical analysis tools such as price action patterns to find more clues on whether price could bounce at this level.

## Drawing Fibonacci retracement levels in a downtrend

1. Find the X to A cycle which is one big cycle, or wave lower.
2. Select the Fibonacci Retracement tool from the top menu: Insert -> Objects -> Fibonacci -> Fibonacci Retracement.
3. Left-click and hold down at the top of the cycle, X.
4. While holding the mouse button down, drag the line to the bottom of the cycle, A.
5. The Fibonacci indicator will automatically draw the Fibonacci retracement levels on, as shown below:

An example of the MetaTrader 5 trading platform provided by Admiral Markets showing Fibonacci retracement levels drawn on using the Fibonacci retracement tool in a downtrend.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

In the price chart above, the Fibonacci levels are plotted as horizontal lines with the Fibonacci descriptions written on the right-side of the chart. You may have noticed that the X level is plotted as 100 and the A level is plotted as 0. This is because if the price retraced from point A all the way back to point X it would be a 100% retracement.a downtrend, these Fibonacci levels provide areas of resistance where the market could correct lower and continue the trend down. In the example above, price did indeed find resistance at the 38.2% Fibonacci level and then correct lower. Typically, traders would look at other technical tools to further confirm the possibility of a correction lower. This will be evident in the next section as we go through a Forex Fibonacci trading strategy.

## How to use a Fibonacci trading strategy

So far you have learnt that in an uptrend Fibonacci retracement levels can act as a support level where price may bounce and continue moving higher. Conversely, in a downtrend Fibonacci retracement levels can act as a resistance level where price may bounce and correct lower. You have also learnt how to plot these levels using the Fibonacci indicator in the MetaTrader trading platform provided by Admiral Markets, as well as how to use Fibonacci extension levels.

Both Fibonacci retracement levels and Fibonacci extension levels are used by a wide variety of traders covering different trading styles, such as long-term trading, day trading and swing trading. The levels are also used across different markets such as Forex, as well as on Stocks, Indices and Commodities.

While the next section will focus on a Forex Fibonacci trading strategy, you can apply and test the same principles on other asset classes. In fact, with Admiral Markets you can access a wide variety of different asset classes completely risk-free by using a demo trading account. This will also give you the chance to practice and test your Fibonacci trading skills with zero risk! Simply click on the banner below to open a demo account today:

### A Fibonacci Forex trading strategy

We have already established that the price of a market can often turn, or find support or resistance, at different Fibonacci levels. Within a Fibonacci trading strategy, traders can go one step further and add in more technical analysis to help confirm whether the market will actually turn or not.

One of the most popular confirmation tools that can help identify whether the price of a market may turn or not is price action analysis. This is the study of candlestick or bar formations on the chart and there are a variety of price action trading patterns traders can choose from. If Fibonacci retracement levels give us the area to buy or sell, then price action trading patterns can help us time when to buy or sell.

Two of the most common types of price action trading patterns are the ‘hammer’ and ‘shooting star’ patterns.

The hammer pattern, as shown above, is a bullish signal which signifies the failure of sellers to close the market at a new low and buyers surging back into the market, to close near the high.

The shooting star pattern, as shown above, is the opposite of the hammer pattern. It’s a bearish signal which signifies the failure of buyers to close the market at a new high, and sellers surging back into the market, to close near the low.

So how can we use these patterns with Fibonacci lvels? Let’s take a look at some examples! It is important to note that the following strategy has not been tested historically for its effectiveness but merely serves as a starting point for you to build upon. Traders can take this strategy one step further by experimenting with different technical tools, Fibonacci ratios and markets by learning more in the Admiral Markets Education library.

### Fibonacci Forex trading strategy: Uptrend

Let’s start with a simple set of rules for when the market is in an uptrend:

1. Identify large cycle up (X to A) and draw on Fibonacci retracement levels from the bottom of X to the top of A, using the Fibonacci indicator in the MetaTrader trading platform provided by Admiral Markets.
2. Identify bullish price action trading pattern, such as the ‘hammer’ pattern at one of the Fibonacci retracement levels.

Both these rules are shown in the example price chart below:

An example of the MetaTrader 5 trading platform provided by Admiral Markets showing Fibonacci retracement levels and the ‘hammer’ price action pattern, finding support at the 23.6% Fibonacci level.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

We can also add a third rule on identifying a possible target level for the trade:

1. Use the 161.8% Fibonacci extension level as a price target level by using the Fibonacci retracement tool and measuring from the A to B cycle, as shown below:

An example of the MetaTrader 5 trading platform provided by Admiral Markets showing the Fibonacci extension level 161.8%.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

In the example above, the price has moved higher from the ‘hammer’ price action pattern which formed at the 23.6% Fibonacci retracement level. However, it is yet to reach the 161.8% target level. While the trader may want the market to go the target level there is no guarantee it will. In fact, the market – at any time – could reverse the other way and change trend.

This is why risk management and using a stop loss will prove to be beneficial in the long run as it can help to minimise losses.

### Fibonacci Forex trading strategy: Downtrend

Let’s start with a simple set of rules for when the market is in a downtrend:

1. Identify large cycle down (X to A) and draw on Fibonacci retracement levels from the top of X to the bottom of A, using the Fibonacci indicator in the MetaTrader trading platform provided by Admiral Markets.
2. Identify bearish price action trading pattern, such as the ‘shooting star’ pattern at one of the Fibonacci retracement levels.

Both these rules are shown in the example price chart below:

An example of the MetaTrader 5 trading platform provided by Admiral Markets showing Fibonacci retracement levels and the ‘shooting star’ price action pattern, finding resistance at the 23.6% Fibonacci level.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

We can also add a third rule on identifying a possible target level for the trade:

1. Use the 161.8% Fibonacci extension level as a price target level by using the Fibonacci retracement tool and measuring from the A to B cycle, as shown below:

An example of the MetaTrader 5 trading platform provided by Admiral Markets showing the Fibonacci extension level 161.8%.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

In the example above, price did indeed move lower from the ‘shooting star’ price action pattern which formed at the 23.6% Fibonacci retracement level. In this instance, the price went all the way to the 161.8% Fibonacci extension level.

Within the uptrend and downtrend Fibonacci forex trading strategy above, we used a combination of Fibonacci retracement and extension levels and price action. To learn more about different types of strategies and the tools you can add to the above then visit this article on Trading Strategies.

You can start the account opening process here, or watch the video below on how to open a live trading account with Admiral Markets.

Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world’s most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

## How to use Fibonacci in trading

Trading based on the Fibonacci method is a unique way of analysing markets. The Fibonacci hypothesis that was developed by the famous mathematician, Leonardo de Pisa, has stood the test of time.

Even to this day, traders apply the concepts of Fibonacci and the golden ratio; represented by the number 1.618, in various forms of technical analysis. Fibonacci methods, however, are most commonly applied to identify support and resistance levels.

Traders use the Fibonacci numbers in order to estimate where prices might retrace or reverse by measuring the most recent leg of an uptrend or downtrend.

Fibonacci-based trading methods work due to the fact that they’re widely practiced. So, despite the mysticism attached to this form of technical analysis, it is, in fact, a self-fulfilling prophecy. To put it in other words, given the widespread use of Fibonacci-based methods of analysis, traders tend to watch these levels and trade based on the Fibonacci levels, making them into forms of support and resistance that simply work.

Before we get into more detail on the subject of Fibonacci trading, a bit of history and context is required.

## Where did the Fibonacci numbers come from?

It is said that in the year 1202, Leonardo de Pisa, or Leonardo Pisano, who was born in Pisa, discovered the Fibonacci sequence of numbers. Although the Fibonacci sequence is largely attributed to Leonardo, his knowledge came from his travels to the Far East. Having learned about the Hindu-Arabic numeral system, Fibonacci documented his discovery in his famous work; “Liber Abaci”, which eventually led to his nickname as Fibonacci.

The works of Leonardo eventually gave way to the discovery of what is called “the golden ratio.”

The golden ratio has been proven to appear, not just in the financial world of trading, but in every aspect of life; from famous pieces of Ancient Greek architecture, to nature. The most famous example of the golden ratio is the nautilus shell. The golden ratio can be seen in the nautilus shell, which expands in a logarithmic spiral. By connecting the arcs with squares, or Fibonacci tiling, the sizes of the squares follow the Fibonacci sequence of numbers.

### Understanding the Golden Ratio or Phi

The golden ratio, or phi, is the number 1.618. The inverse of this is 0.618. Phi (pronounced “fi” or “fy”) is the ratio of the length of one line segment to another, which results from dividing the original line at a certain point. For example, the distance from point A to point C in the line below is said to be 1.618 times that of the distance from point B to point C, and the distance from B to C is 0.618 times that of A to C. In mathematics, phi with an upper-case ‘P’ represents 1.618, while phi with a lower-case ‘p’ represents the inverse, which is 0.618.

The golden ratio occurs in the numerical series developed by Leonardo, also known as the Fibonacci sequence of numbers.

## What is the Fibonacci sequence of numbers?

Leonardo described his sequence of numbers in the following way:

0,1,2,3,5,8,13,21,34,55,89,144,233 and so on.

The further you progress into the sequence; you will find that each number becomes 1.618 times greater than the preceding number. For example, when you divide 89 by 144, you get 0.618, but when you divide 89 by 55, you get 1.618; the golden ratio. This is similar to the illustration given in figure 1 with regards to points A and B in relation to point C.

Based on the Fibonacci sequence, we now know two main ratios; phi, which is 1.618 and its inverse; 0.618. Aside from the above, other ratios include 0.382. This ratio is formed when you take a number and divide it by the number two places to the right.

Thus, 89/244 = 0.3819 or 0.382 when rounded to 3 decimal places. Further variations also derive other ratios such as 0.236, which is derived from taking a number and dividing it by the number four places to the right. In the world of technical analysis, the following ratios are the most important: 0.236, 0.382, 0.618, and 1.618. Of course, you can find many other ratios, but the above four are the most important.

## How to use Fibonacci ratios in Forex trading

Traders know that prices never rise in a straight line. Prices tend to rally or decline, then retrace, and then continue in the direction of the previous trend. By using Fibonacci ratios, you can measure a wave (a rally or a decline) and then anticipate where the price might retrace when it pulls back.

The Fibonacci ratios are the key levels where you can expect the price to retrace. Thus, Fibonacci ratios are nothing more than support and resistance levels. They work because these levels are watched by a large number of traders.

Fibonacci levels can be combined with any trading strategy. For example, if you use a moving average, you can apply Fibonacci levels to measure the length of a rally and then wait for the moving averages to confirm the bullish or bearish trend when the price makes a pullback.

Of course, using Fibonacci levels requires a bit of discretion. For example, the points you choose to measure the Fibonacci level can vary from one trader to another. Likewise, some traders use only the opening and closing prices, while others use the high and low prices.

Remember that Fibonacci levels are an exact science.

### The Fibonacci retracement tool – MT4

The MetaTrader 4 (MT4) trading platform, as well as just about any other trading or charting platform, has the Fibonacci measurement tool. You can access this from MT4’s main menu: Insert > Fibonacci > Retracement.

There are many other Fibonacci tools; such as the Fibonacci spiral, Fibonacci arcs, and so on. But among all these tools, the retracement tool is the most widely used. In MT4 and most other charting platforms, you can also adjust the levels.

In this example, we only apply 0.618, 1.618 (which is the extension), and 0.382. You can adjust further values by double-clicking on the Fibonacci tool and entering the values yourself. An example of this is shown in figure 2 below.

## How to draw Fibonacci levels

The first step is to identify a strong movement in the market. This could be a strong rally or a strong decline. Now, starting in the opposite direction to this strong movement, click on the starting point of this rally (could be a high or low) and drag the Fibonacci tool to the end point.

A quick way to see if you’ve plotted the Fibonacci tool correctly is to simply look at the 0 and 100 values. When the Fibonacci levels are plotted, you’ll see the retracement level 0.382 followed by 0.618.

Figure 3 illustrates an example of how to draw the Fibonacci tool.

## How to trade with Fibonacci levels

Now that the Fibonacci levels are in place, the next step is to expect a reversal either at the 0.618 or 0.382 Fibonacci ratio levels. These are nothing but supports and resistances. In an uptrend, when you measure the Fibonacci ratios (as shown in figure 3 for example), the 0.618 and 0.382 (and other Fibonacci ratios) are potential support levels.

Conversely, when you measure a downtrend using Fibonacci ratios, the levels of 0.618, 0.382 etc. become potential resistance levels.

Depending on the price action at these levels (or based on signals from other technical indicators) you can expect prices to reverse (or in some cases break these levels and change direction).

In most cases, when the price retraces to 0.618 or 0.382, you can expect it to then rally towards 1.618, which is known as the Fibonacci extension level.

This principle is widely used as a trading strategy in itself as traders typically buy or sell near the Fibonacci retracement level and take profit near the Fibonacci extension level.

In the above example in figure 3, a long position would have been opened at either 0.382 or 0.618 (deep or shallow retracement) with a Take Profit set at the 1.618 extension level.

Some traders also make use of the 50% retracement level, while others prefer to round off the Fibonacci ratios to 0.40%, 0.62% and so on. It doesn’t make much of a difference; just as one trader may use highs and lows while another trader might use the opening and closing prices.

Fibonacci ratios can be applied to any market and any timeframe as long as there is a strong movement in the market. One of the most important aspects of successful trading with Fibonacci levels is to have patience and wait for a pivot high and low to be formed.

Figure 4 shows the Fibonacci ratios applied to a daily chart for Cisco Systems (CSCO).

In the above example, you can see where the high and low points were taken from and the subsequent retracement to the 38.2% Fibonacci level.

Most traders tend to plot Fibonacci levels as the price evolves. However, a trader must wait for a few sessions until the retracement is in the early stages. Another important thing to bear in mind is that just because the price retraces to a Fibonacci level, there is no guarantee that the price will continue in the direction of the trend.

There are many instances when the price bounces off the 61.8% retracement but the subsequent rally fails, with the price eventually changing trend and thus, its direction.

In conclusion, Fibonacci ratios might seem mystical but they are nothing but support and resistance levels that are widely watched by traders. The popularity of Fibonacci levels makes them a self-fulfilling prophecy; as large buy and sell orders are placed at these levels.

The fact that Fibonacci levels represent potential areas of support and resistance makes them a unique choice for trend traders.

## Fibonacci Retracement Binary Options Strategy – How It Works

Fibonacci Retracement is an innovative technical strategy based on the Fibonacci tool, developed to detect more stable retracements. Compared to the original Fibonacci usage, the new system is considered much more effective. This article will show you in detail how to apply this strategy to collect binary options trading opportunities.

## What is Fibonacci Retracement?

As you already know, the Fibonacci trading tool is highly appreciated by many traders due to its accuracy in spotting bounces/reversals. It’s mostly applied to determine hard support and resistance barriers. Therefore, in that logic, let’s say you draw two Fibonacci retracements and see some overlapping levels, surely they are ‘stronger’ and likely to halt prices better than the separate thresholds, correct?

The good news is, both Fibonacci Retracement and Extension can be used in this way, and this technique could be applied to any financial assets, from currency pairs, commodities, indices to cryptocurrencies. However, in order to make this strategy work, you must know how to combine the Fibs correctly. Let’s review some practical trading examples to find out how to use this Forex Fibonacci strategy precisely.

## How to use Fibonacci Trading Strategy?

Remember – the larger the trading time frame is, the more accurate the signals are.

Let’s say you are watching an uptrend. In a bid to identify the obstacles that prices may bounce at, you draw a Fibonacci retracement. The first point is the lowest point of the trend, while the final point is the highest swing high.

After having the first Fibonacci retracement, your work is to create a smaller one to seek the overlapping levels. The smaller Fib’s first point will be the nearest swing low (must be easy to look), while the final point is at the same place with the large Fib’s ending point.

As you can see, the 23.6% level of the large Fib is very close to the 50.0% threshold of the smaller one. That support area is highly reliable and sufficiently strong to force prices to retrace.

On the contrary, you can create a large Fib in a bearish trend by drawing from the highest point to the lowest swing low of the trend. The smaller Fib is made in the same manner as in an uptrend: drawn from the nearest swing high to the lowest swing low. Of course, the swing high must also be obvious.

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