Fibonacci.
Fibonacci is a tool that acts as a magnet for price. It is used more often to determine the potential of a correction, and to set goals after it ends. This tool is very flexible as it is customizable and most traders use it in a peculiar way. This article will contain information that has been verified by personal practice.
Rules of Use:
1. To determine the allowable correction of the upward movement, the grid is drawn from the bottom upwards. To determine the allowable correction of a downward movement, the grid is drawn from top to bottom.
2. To use the Fibonacci grid correctly, you need to understand clearly the swing low/high location.
3. Applies to absolutely all timeframes.
It is used to determine the corrective movement and also for position targeting.
To begin with, Fibonacci is not used for solo trading. The tool implies a complex approach of additional factors to open a POSITION.
The most important levels that require close attention are: 0.5, 0.62, 0.705, 0.79. This grid differs from the classical one. Let's consider the reasons: 0.5 is a level, which is considered a fair market price. The value of 0.5 is used in trading in other instruments and acts as a significant level (for example, Range). To open a position we will be interested in the price behavior beyond 0.5. For short positions, prices above 0.5 are considered as premium prices. For a long position the prices below 0.5 are considered as discount prices.
From the classic analysis the level of 0.618 is the most significant, because the price ends the correction exactly at these values. For a clearer entry, an extended grid is used, which is called OTE.
OTE - optimal trade entry. A price range that lies between 0.62-0.79 on the Fibonacci grid. Depending on the auxiliary instruments, this is our zone for entering a position. 0.705(10235.0) The value of 0.705 is obtained by averaging between 0.62 and 0.79.
An example of the price reaction on the OTE. This tool gives the clearest response when used with orderblock. With time and practice, you will see how often this combination occurs, as in the example.
Example of use for a long position in the same area of the chart.