The Fibonacci levels (or retracement levels) is the name of the most sophisticated indicator on the Binomo platform. It can be very powerful when applied correctly. It is utilised for trade around the reversals of a trend. Today’s guide will give you insight into the principals of using it.
Fibonacci Levels overview
The Fibonacci levels is a graphical tool that has a form of a few lines on the price chart. They are spread between 0 and 100 values. The lines are placed on the following levels (23.6) 23.6%, (38.2) 38.2%, (50) 50%, (61.8) 61.8% and (100) 100%. It helps to identify entry and exit points for the transactions as thanks to the Fibonacci lines you are able to foresee the areas of the price retracement.
Configuring Fibonacci lines on the Binomo platform
First, log in to your account on the Binomo platform. Set the chart for the Japanese candlesticks and choose the asset. Then, go to the Chart preferences icon. Once you have clicked it, select the Tools tab and find “Fibonacci” on the list.
Now, you have to recognize whether it is an uptrend or a downtrend as drawing the Fibonacci lines will look slightly different in both cases. In an uptrend, you need to click the mouse on the highest value of the price and pull the mouse to the lowest point on the chart. Release the button and the Fibonacci levels will be arranged.
In a downtrend you just have to reverse this procedure. That is, you have to click on the lowest values of the price, and drag the mouse’s cursor to the highest price on your chart. After releasing the button you will see the Fibonacci lines distributed across your chart.
Applying the Fibonacci lines in anticipation of a retracement of a trend
Please note that the trend reversal and the trend retracement are not the same things. The reversal of the trend is the situation when the trend changes its direction. It can switch from an uptrend to a downtrend or the other way around. Now, retracement of a trend happens when the change is just momentary. The price changes the direction for a short period of time and then returns to the previous course. So during an uptrend, the price falls for some time and then rises again. In the downtrend, the price moves up just to drop further down in a moment.
The Fibonacci lines distributed across the chart mark the retracement areas. The points where the price falls into these zones signal the moments you should enter the trading position. The 61.8 area is the most commonly used among professionals. They are convinced the selling or buying pressure increases significantly and the price fluctuations are therefore more probable. That is why you should enter the trade when the price hits the Fibonacci levels.
Trading with Fibonacci levels on the Binomo platform
During an uptrend demonstrated below you anticipate the price will reach the 61.8% line and retrace for a while. Then it will retake its former direction, that is, it will move upwards. This is the right moment to go long. The duration of the transaction should be adjusted according to the chart you are using. For example, if you trade with a 30-minute chart, you can hold your position for 30 minutes or more.
Below, you have an example of a downtrend on the Binomo platform. With the Fibonacci levels drawn, you just have to wait for the price to reach the 61.8% level. The price is expected to retrace and then continue downwards. You should, therefore, open a short position for a duration of at least 30 minutes (with a 30-minute chart).
Summary
The Fibonacci levels indicator is a wonderful tool to predict a trend’s retracement zones. Using them is not as complicated as it might seem in the beginning. But you need some practice to perfect the skills of trading with them. Remember there is a free Binomo demo account which is an excellent place to implement new techniques.
You should use the Fibonacci levels for long-lasting trades. Set the chart for at least 30-minute period candles when you want to use this tool.
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Best wishes!