FIBONACCI TO TRADE THE FINANCIAL MARKET
As with almost anything in life, there is the good, and the bad side- Fibonacci isn’t left out. Although Fibonacci has proven to be of tremendous help to traders of the financial market with its retracement and extension levels, it has its setbacks.
Support & Resistance
As earlier stated, the primary aim of using Fibonacci retracement is to recognize price ceilings and floors. Points at which price retraces downward or pushes upward.
More so, support and resistance are fundamental elements of trading the financial market. They are critical analysis that predicts price movement either upward or downward. And sometimes represent the difference between successful trading and otherwise. So, in Fibonacci retracement is found an essential element in a trader’s toolkit.
Entry & Exit
Apart, from confirming potential market movement using support and resistance. The Fibonacci retracement also helps traders choose the best possible entry and exit point of their trades. By this, I mean using a Fibonacci retracement indicator, traders can make a more informed decision on the best possible position to open a trade. And also, make a more informed prediction about the most suitable place to close a trade.
With the Fibonacci retracement, traders can test the genuineness of trend movements in the financial market. For it allows us to recognize trends that are possibly going to continue after retracement from previous positions.
Disadvantages of Using Fibonacci To Trade
Now, we have to assess the cons of using Fibonacci retracement in using forex, futures or stock. With all the benefits that come from this quality indicator, what could be its drawbacks?
To use the Fibonacci retracement indicator efficiently, one would need high-quality knowledge about its functions and properties. Therefore, you could say that the Fibonacci retracement indicator is not much of a useful tool for beginning traders. As one can only effectively utilize it if one understands what to look for.
Also, drawing horizontal lines on a price chart is quite confusing where there is no proper knowledge about what they stand for.
In summary, Fibonacci helps traders get a possible outcome, but as with all indicators in the financial market, it is not 100% accurate. So, getting the best out of Fibonacci depends on you knowing when to use and how to use it. And since a lot of people use it, results may tend to be similar among traders. Which helps to accumulate price in a place and more it in the desired direction.
Best Time Frame To Use Fibonacci Retracement
In the financial market, using the right time frame to trade. Traders over time research to ensure they use the best time frame for their market analysis. Essentially, the time frames for trading includes 1 minute, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, daily, weekly, and monthly time frame.
Traders and financial analysts choose the best timeframe based on specific criteria. Some of which are the indicator they use, their type of trader, and the asset.
Let’s begin with a trader type. There are some trader types we have which include scalpers, day traders, swing traders, and position traders. Therefore, traders make use of time frames that best suit their trader type.
For instance, scalpers majorly trade using the lower time frames (1 minute and 5 minutes). For they only aim to be in the market for a few minutes or seconds, taking only a few pips from the market.
Here, trade only takes place within a day. Day traders enter and exit a trade on the same day. They do this to avoid unforeseen news and swap rates overnight. Therefore, they do not leave their transactions overnight. Day traders use time frames from minutes to few hours (15-30 minutes and 1-4 hours). They also trade daily news.
The third category of traders are not scalpers or day traders; they trade for a few days. That is, swing traders leave their trades open for 1-5 days because they do not like to trade weekends. So, they make use of higher time frames for technical analysis, such as 4 hours, daily, weekly time frames.
So, these are long-term traders; they seek to benefit from strong long-term movements in the market. Therefore, they make use of longer time frames for they trade for weeks and even months. That is, opening a position for weeks and months. Subsequently, they make use of higher time frames, including a monthly time frame.
What Timeframe Is Most Suitable For Fibonacci Retracement?
Also, some indicators are best used on higher timeframes, some are suitable for shorter timeframes, while others apply to both. The Fibonacci retracement tool is more suitable for higher timeframes.
Smaller timeframes are more liable to disruptions, pullbacks, retracement. Identifying a trend on a 1-minute timeframe will do you no good except you’re scaling for few pips. And you will frequently have to monitor your trade, for any movement in price, no matter how little affects the lowest timeframes.
Therefore, the best timeframe for Fibonacci is the medium or higher timeframes. That is, from 15- minutes timeframe to higher timeframes depending on your type of trader.
So, there you have it, the best timeframe on which to draw Fibonacci. Now, you know that what is most suitable is dependent on your type of trader and the trade positions you open. Henceforth, make the best out of this excellent technical indicator by using it where most suitable which aligns with your trading goals.
BREEDING SEQUENCE BECAME MAJOR STOCK STRATEGY
The sequence has always been a scale of figures and numbers. In time with different theories here and there, we have seen sequence come to play in important aspects of our lives. The metrics, measurements, probability, it has seeped its way into the foundational theories of many things. A sequence is more or less a set of numbers that follow a certain rule or order. They are aligned in a way that proceeding numbers are a function of preceding numbers and vice versa. When a sequence is concerned, the law or order that guides it is the same from the beginning to the very end. One of these many functional sequences is the FIBONACCI sequence. Just like previously stated, it is also a sequence of numbers that follow a particular order.
The rule of the Fibonacci sequence
The Fibonacci sequence has it sown the independent rule of law that guides it that remains unique to itself. The Fibonacci sequence deals with a set of numbers that follow an order starting from zero or one. Here, the order starts from zero or one, proceeds to one, and then the next numbers that follow it are individually a sum of the last two preceding numbers. What makes the Fibonacci sequence what it is that each Fibonacci number results from the sum of the last two letters.
An example of a Fibonacci sequence
F(0) = 0, 1, 2, 3, 5, 8, 13, 21, 34…..
It could be seen that each figure was a function of the last two preceding numbers. That is the Fibonacci sequence.
FIBONACCI: ORIGIN OF THE SEQUENCE
Like every other sequence, it originated from somewhere, and this particular one called the Fibonacci sequence was formed by a man known as Leonardo Pisano, sometimes also called Fibonacci. Not surprisingly, he was an Italian mathematician (1170- 1250). This sequence was formed to solve an arithmetic problem concerning a pair breeding of rabbits.
The problem was to deduce how many pairs of rabbits can be birthed if a pair of rabbits were to mate for a year, birthing one pair starting from the next month. The results were the Fibonacci sequence of numbers highlighted in the previous subheading.
Since then, the Fibonacci sequence has become an incredibly important sequence to both biologists and physicists alike. This is due to its accuracy when it comes to observing natural specimens and their phenomena. Since then, many applications have popped up for the use of the Fibonacci sequence. After it was introduced into western civilization by Pingala, known to be a Sanskrit grammarian, its more grounds were tested to see how well it applies to many other scenarios. The Fibonacci poem was subsequently birthed. It was a type of poem whose lines followed the Fibonacci pattern.
Not surprisingly, the Fibonacci sequence’s accuracy and usefulness in many scenarios led it into the finance and trading sector.
THE FIBONACCI SEQUENCE, TRADING, AND THE STOCK MARKET
The Fibonacci sequence birthed the golden Fibonacci ratios. They became a major contributor to trading strategies. Very soon, terms like Fibonacci extensions and retracement became a popular term in the forex and trading market. Whenever there is a change in stock prices, either up or down, there will be a retracement before the next change. It shows that the stock has taken a Fibonacci level. A golden ratio derived from the Fibonacci number works by dividing one number by the next. This number is .618 and has been related to stock price changes, retracements, and target levels periodically.
Therefore, the discovery made many years ago; the Fibonacci sequence can change the stock market and trading market forever!
Fibonacci numbers in Architecture and Art.
For centuries, Fibonacci numbers have been used in music, art, and architecture. The series and the golden ratio closely interwoven provide proportions fascinating to the eyes. The golden rectangle is also mostly used in architecture. The rectangles were constructed with Fibonacci numbers to offer closer to the value of phi.
An excellent example of Fibonacci numbers in architecture is the pyramid of Giza. The lengths of the pyramid are roughly 612m and 388m. Dividing these lengths gives you 1.62m, which is very close to the golden ratio.
This shows that the Egyptians might have known about the golden ratio, or they might have chosen these measurements because they thought the measures were appealing to the eyes. Another famous example is the Greek Parthenon, the shrine of the goddess Athena. The measures of the front of the Parthenon building conforms to a golden rectangle. The total width of the temple is 1.618 times its height.
Like the ancient Egyptians, they might not have been intentional on the part of the Greeks. A building in which the construction involved the Fibonacci numbers are the Florence cathedral, which has a ratio of 1.618, which is very close to the golden ratio.
The sea horizon, the path of a meteor fall, a waterfall parabola, the flight path of a bird are geometric curves that are important to human beings.
Many ancient and modern art paintings and sculptures worldwide feature the golden ratio: Madonna paintings, Chinese ceramic bowls, Buddha statues in India. Leonardo da Vinci utilized the golden ratio in most of his works. The Mona Lisa, the Vitruvian man sketch, are a few famous examples. If you divide the golden rectangle, it results in a square that contains the Mona Lisa head with her left eye at the center.
The Aphrodite of Melos statue can be halved into the golden ratio by her abdomen. The Apollo Belvedere stature also forms the golden ratio from the navel to the top of the head.
Price moves up and down or sideways, but the direction a price can carry depends on the trend. A strong trend moves a price sideways. Most of the time, price moves in a range and move in a trend thirty percent of the time. When price moves in a range, it moves with no specific direction, and you can’t make money with type of movement. The best thing you could do is wait for the trend to come back and start investing.
An uptrend price makes higher high and higher lows while a downtrend price makes a lower high and a lower low. This trend behavior shows you the current trend and the Fibonacci retracement level. Sometimes price can move up and down depending on circumstances like bad news, fear, and happiness.
Many traders still believe in the old ways of trading. Buying and holding is their preferred way of trading. This kind of traders thinks they are better than traders that gamble in the short term, and they believe investing in value is the way to go.
Traders who follow trends use lagging indicators, which is slower than the Fibonacci traders using leading indicators.