Using the Fibonacci Technique on Charts

Using the Fibonacci Technique on Charts

The use of the Fibonacci technique is still applicable today as it did centuries ago. Leonardo Pisano rediscovered its practical use in many aspects of human life which includes the trading business. Today traders make use of this method as a tool in conducting technical analysis of the market. New traders can also learn how to use this in order to predict the best time to enter or to exit a market. Most traders make use of the retracement levels as well as the extension ratios which they analyze as the ratios or the levels are plotted on charts.

Traders have to be able to predict the best entry point by looking into their charts for the most recent high and low swing trades. Most of the time traders make use of the retracement levels which are calculated at 23.6%, at 38.2%, at 50% and at 61.8%. They will then have to draw the lines on their charts as to where the prices would be at these points. Traders can enter the market when the prices are going down on any of these levels. They will be able to make profit once the prices retrace its original path or when it starts to move upwards again.

Traders can also make use of the Fibonacci extensions if they would like to predict exit points. They can take their cue when the prices have retraced to more than 100% based on the predictions that they have plotted on their charts. The most used extension levels are at 1.618 and at 1.272. New traders can learn how to keep their charts running using retracement and extension levels. However, they have to keep their Fibonacci lines updated as they progress with their trade. Through their charts, they will be able to determine clusters or trade range patterns.

The data that they have plotted on their charts will help them in deciding when to enter or when to exit a market especially for those who are engaged in short term trading. Traders can make use of the Fibonacci technique together with other reliable tools for market analysis. They can also make use of technologically aided tools such as software programs in order for them to get more accurate data which are plotted correctly on their charts. New traders on the other hand may find the use of the technique a little confusing and difficult at first. However, they will fully understand its application if they engage and use it in actual trading activities.

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