Before reading the below article, please make sure to read these articles carefully:
- Fibonacci Trading – How To Use Fibonacci in Forex Trading
- How to Add Tools Like Gann and Fibonacci to MT4 Line Studies Toolbar
Also, please make sure to watch this video, because it is linked to the below article.
I am always asked how far the market goes after a trade setup, for example after a sideways market support or resistance breakout?
There are several ways to answer this question and to find out how far a market probably goes after a trade setup like support or resistance breakout on a sideways market. Fibonacci numbers are one of them, although they are tricky and it is not easy to use them. It needs lots of knowledge and experience to plot Fibonacci levels on price charts in the way that they show you the next destination of the price. Most traders use the Fibonacci tool the wrong way.
Before using them, you must know which of the Fibonacci numbers are more important in trading. There are only a few of the numbers that are extremely important and markets react to them most of the time. I say most of the time, because nothing is absolute, exact and precise on markets. As they say, trading is not technical. It is psychological. However, even when it is really psychological, Fibonacci numbers work most of the time, because our minds also work agreeable to Fibonacci numbers.
61.80 and 161.80 are the most important Fibonacci numbers in trading.
Therefore, 61.80% and 161.80% levels are the most important levels on price charts. Markets usually react to these levels strongly, and they form new support/resistance levels at these levels.
Let’s take a look at USD/CHF monthly time frame that has been moving sideways for several years:
According to our most recent analysis, it seems the range is getting broken on USD/CHF monthly time frame. It seems the support level of the range is getting broken. If you like to know what I mean, you need to read the below posts and watch the related videos, because it is several days that we have been following and analyzing this market:
- Taking Short Positions Explained
- Support Level Breakout Trading Strategy Explained
- Long Term Gold Price Forecast: Buy, Sell, or Hold?
Now, let’s see how we can use Fibonacci levels on USD/CHF monthly time frame to determine how far the price will go down, in case of a the sideways market support level breakout.
You need to plot the Fibonacci levels from the support level to the resistance level of the sideways market, or I’d better to say from the lowest price to the highest price of the range, so that the 161.80% and 261.80% levels will be placed below the sideways market.
As the first point, I used the low price of 2018.02.01 monthly candlestick, which is at 0.91867. As the second point, I used the high price of 2016.12.01 monthly candlestick, which is at 1.03431, to plot the Fibonacci levels.
I started from the 0.91867 and ended to 1.03431. If you do it the other way round, then then 161.80% and 261.80% levels will be placed at the top of the sideways market, which is not our case, because we think there is a support level breakout forming, not a resistance level breakout.
If this is confusing to you, then you really need to watch this video to see how I have plotted the Fibonacci levels:
If the support level is really broken, then the next destination of this market will most probably be the 161.80% level. Follow our videos and analysis more precisely in future, because we will keep on analyzing these markets and also talking about Fibonacci Levels. Subscribe to Our YouTube Channel to receive our videos on time, and before the price movements, so that you can take your positions on time.