Fibonacci Strategy for Binary Options Trading
February 28, 2016
Fibonacci strategy is such a weird name in binary options trading, one would want to know where he name came from. Leonardo Pisano was nicknamed Fibonacci and was an Italian mathematician who learned the Hindu–Arabic numeral system. The Fibonacci sequence of numbers is made up of numbers where the 3rd number is the sum of the two numbers before it, such as in 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55 and so on.
Each number is about 1.618 times greater than the preceding number, with 1.618 being known as Phi or the Golden Ratio.
Fibonacci Strategy – The Golden Ratio
A fibonacci retracement is a tool used by technical traders and is based on the key numbers identified by Leonardo Fibonacci. Fibonacci retracement is created by taking two extreme points on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.
There is an important ratio obtained by dividing the higher number with the lower one proceeding it in the sequence. If you divide 233 by 144, you’ll get 1.618 – the golden ratio. Another important ratio is obtained by dividing any number in the sequence by two numbers higher, so if for instance you divide 144 by 377, you get 0.381.
Horizontal lines are drawn so as to identify possible resistance levels. The idea is to locate up or down and retracement trends on the chart after which the trend will continue in the same direction. Retracements are a normal part of trading, and a trader needs to know how to use retracements to his advantage. The tool plots horizontal lines on the charts which correspond to possible areas to which prices may retrace.
Fibonacci Strategy – Investments React to Changes in the Market
It has been shown that as the price of a stock or option moves, the support and resistance points are at these lines, allowing investors to understand how an investment is likely to react to changes in the market. Since the percentage lines drawn on the chart help predict where changes will occur, it can help you to determine the right time to buy or sell your binary option.
In a downward trend option after the low point, the option will have an upswing as far as one of the Fibonacci percentages. A prediction that the option will rise above the 61.8th percentile would go against the Fibonacci Retracement, resulting in a a potential loss.
As you become better acquainted with Fibonacci Retracements with binary options, you understand whether the lines of Fibonacci are correct or whether they require adjustment.
Fibonacci Strategy – Practice with a Demo Account
Before you use Fibonacci Retracements with more complex options, it would be a good idea to open a demo account to understand the process and talk to those with experience to gain a better understanding of different investors’ strategies for utilizing them. Before you know it, you will be trading with the best. Using Fibonacci retracements and extensions are an effective and accurate trading technique.
Fibonacci Strategy – Valued Tools for Today’s Traders
The Fibonacci retracements as well as extensions can be used alone, but for better results you can use the indicator through a number of well known tricks of the trade. The bottom line is that Fibonacci retracements and extensions are known to be excellent predictors of a security’s resistance and support lines.
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All info was correct at time of publishing