Fibonacci Forex Trading
Fibonacci strategies in the context of forex trading use the Fibonacci sequence of numbers, ratios and patterns to inform entry and exit points. In this guide, we explain how to implement Fibonacci retracement levels and extensions. We also cover what you need from a broker, the best analysis software, resources, and how to get started Fibonacci forex trading.
Forex Brokers With Fibonacci Chart Patterns
- Forex.com - Forex.com is a leading FX broker. The brand offers a wide range of currency pairs and some of the lowest fees in the industry. Spreads on the EUR/USD come in as low as 0.0 with a $7 commission per $100k.
- Interactive Brokers - Trade 85 major, minor and exotic forex pairs via CFDs on IB's FXTrader platform with tight spreads and low commissions, or trade forex on the spot market. They offer more FX assets than almost any competitor.
- NinjaTrader - NinjaTrader supports the trading of popular currencies including the EUR/USD. The trading software also offers unique features tailored to forex trading, including specific order and market windows.
- OANDA US - OANDA offers 68 forex pairs, more than many alternatives. The broker's in-house platform also offers impressive execution speeds and a suite of advanced charting and analysis tools.
- Webull - Webull offers a modest collection of 17 currencies, including majors like EUR/USD. Forex can be traded on the feature-rich investing app with real-time quotes and low spreads.
Top 3 Broker Comparison
| Forex.com | Interactive Brokers | NinjaTrader | |
|---|---|---|---|
| Forex Assets | 80+ | 70+ | 50+ |
| EUR/USD Spread | 1.0 | Commission (.20 pts x trade value) | 1.3 |
| Forex App Rating | |||
| Minimum Deposit | $100 | $0 | $50 |
| Regulator | NFA, CFTC | SEC, FCA, IIROC, SFC | NFA, CFTC |
| Visit | Visit | Visit | Visit |
#1 - Forex.com
Forex.com is a leading FX broker. The brand offers a wide range of currency pairs and some of the lowest fees in the industry. Spreads on the EUR/USD come in as low as 0.0 with a $7 commission per $100k.
"Forex.com is an excellent broker for active forex traders with over 80 currency pairs, tight spreads, low commissions and powerful charting platforms for day traders. "
- DayTrading Review Team
- GBPUSD Spread: 1.0
- EURUSD Spread: 1.0
- EURGBP Spread: 1.0
- Total Assets: 80+
- Leverage: 1:50
- Platforms: MT4, MT5, TradingView, eSignal, AutoChartist, TradingCentral
About Forex.com
Forex.com boasts a global reputation with multiple awards and 20+ years experience. Regulated in the US, EU, UK and Canada they provide a huge range of day trading markets, not just forex, and offer competitive fees on a cutting-edge platform. The brand also provides a suite of additional tools, from performance analytics and SMART Signals to advanced charts and strategy builders.
Pros
- Industry-leading pricing on popular forex assets starting from 0.0 pips
- Free demo account for prospective traders
- Respected and trusted broker overseen by tier-one regulators including the US SEC
Cons
- No copy trading platform
- $15 monthly inactivity fee
- Investment offering varies between countries
#2 - Interactive Brokers
Trade 85 major, minor and exotic forex pairs via CFDs on IB's FXTrader platform with tight spreads and low commissions, or trade forex on the spot market. They offer more FX assets than almost any competitor.
"Experienced day traders seeking a regulated broker with sophisticated trading software and very low fees should look at IB. Their range of stocks also can't be beaten."
- DayTrading Review Team
- GBPUSD Spread: Commission (.20 pts x trade value)
- EURUSD Spread: Commission (.20 pts x trade value)
- EURGBP Spread: Commission (.20 pts x trade value)
- Total Assets: 70+
- Leverage: 1:50
- Platforms: AlgoTrader, OmniTrader, eSignal, TradingCentral
About Interactive Brokers
Interactive Brokers is a leading global brokerage that provides access to a comprehensive offering of stocks as well as forex, futures, metals, bonds and cryptos. The firm has over 40 years experience in the online trading industry and is heavily regulated by SEC, FCA, IIROC, and SFC. Day traders can use the proprietary Trader Workstation and can access powerful tools and data feeds as well as comprehensive educational resources.
Pros
- Gives day traders unmatched access to global stocks with tens of thousands available from 100+ market centres in 24 countries
- Regulated by some of the world's most reputable bodies including in US
- Diverse payment options and account currencies
Cons
- The TWS platform falls short in terms of technical charting
- Accessing products like CFDs is not straightforward compared to competitors
- Mediocre customer support
#3 - NinjaTrader
NinjaTrader supports the trading of popular currencies including the EUR/USD. The trading software also offers unique features tailored to forex trading, including specific order and market windows.
"NinjaTrader is well-positioned to meet the demands of active futures traders looking for low fees and premium analysis tools. The platform hosts top-rate charting features with custom indicators. "
- DayTrading Review Team
- GBPUSD Spread: 1.6
- EURUSD Spread: 1.3
- EURGBP Spread: 1.6
- Total Assets: 50+
- Leverage: 1:50
- Platforms: NinjaTrader Futures, eSignal
About NinjaTrader
NinjaTrader is a US-headquartered and regulated brokerage that specializes in futures trading. There are three pricing plans to suit different needs and budgets, as well as ultra-low margins on popular contracts. The brand's award-winning charting software and trading platform also offers a high-degree of customization and superb technical analysis features.
Pros
- Industry-leading futures broker with multiple awards
- Excellent trading software for active day traders with bespoke technical indicators and widgets
- Thousands of add-ons and applications from developers in 150+ countries
Cons
- Withdrawal fee on some funding methods
- Non forex and futures trading requires signing up with partner brokers
- Premium platform tools come with an extra charge
#4 - OANDA US
OANDA offers 68 forex pairs, more than many alternatives. The broker's in-house platform also offers impressive execution speeds and a suite of advanced charting and analysis tools.
"OANDA is an excellent broker for US day traders seeking a user-friendly platform with premium analysis tools and a straightforward joining process. OANDA is also heavily regulated with a very high trust score."
- DayTrading Review Team
- GBPUSD Spread: 3.4
- EURUSD Spread: 1.6
- EURGBP Spread: 1.7
- Total Assets: 65+
- Leverage: 1:50
- Platforms: MT4, TradingView, AutoChartist
About OANDA US
OANDA is a popular brand offering exceptional execution, low deposit requirements and advanced charting and trading platform features. The top-rated brand has over 25 years of experience and is regulated by trusted agencies, including the NFA/CFTC. Around the clock support is available, alongside flexible contract sizes and automated trade executions.
Pros
- Industry-leading charting platforms including MT4 and TradingView
- Fast and reliable order execution
- Feature-rich app with 50 indicators, 11 drawing tools and 9 charting styles
Cons
- Customer support not available on the weekend
#5 - Webull
Webull offers a modest collection of 17 currencies, including majors like EUR/USD. Forex can be traded on the feature-rich investing app with real-time quotes and low spreads.
"Webull is best for traders looking to buy and sell stocks on a user-friendly platform with zero commissions. The intuitive app also makes this broker great for mobile investors."
- DayTrading Review Team
- GBPUSD Spread: 0.4
- EURUSD Spread: 0.2
- EURGBP Spread: 0.4
- Total Assets: 15+
- Leverage: 1:4
- Platforms: Desktop App, Web Terminal
About Webull
Webull is a US-regulated trading app that offers stocks, options, forex, cryptos, ETFs, fractional shares and more. The firm is authorized by the SEC and FINRA with a strong trust rating. Low fees, no minimum investment and generous welcome bonuses have made the discount broker popular with online investors.
Pros
- Fractional shares available
- No minimum deposit for beginners
- Easy-to-use investment platform and mobile app
Cons
- Sometimes sudden changes in trading conditions
- Narrow range of payment methods
- High deposit and withdrawal wire fees for non-US residents
The Fibonacci Sequence
Italian mathematician Leonardo Pisano, nicknamed Fibonacci, introduced the West to what is now known as the Fibonacci sequence back in the 13th century.
The Fibonacci sequence is an infinite numerical sequence. Each number in the series is the sum of the proceeding two values (after 0 and 1): 0, 1, 1, 2, 3, 5, 8, 13, 21 etc. Each number is approximately 1.618 times greater than the previous. This ratio, 1.618, is also referred to as Phi or the Golden Ratio.
The Golden Ratio can be depicted in a spiral shape and, interestingly, is a shape that crops up across the natural world. From rose petals to seashells, architecture, human faces and even constellations in outer space. There are some that believe that the spiral shape extends beyond nature and can be used to depict human behaviour too. The theory goes that as people adjust their behaviour in response to change, they do so at a rate proportionate to the Fibonacci ratios.
In the context of trading forex, it’s not the numbers in the sequence themselves that we’re interested in, but the difference between them. The ratios unveil patterns which in turn help highlight opportunities.
Setting Up A Fibonacci Forex Trading Strategy
The application of the Fibonacci sequence to forex day trading is relatively straightforward. It is most commonly used as part of a trend-trading strategy. Traders adopting this strategy anticipate that price will pivot at the points outlined by Fibonacci levels.
The basic premise is that in a market uptrend, you buy on a retracement at a Fibonacci support level, while during a downtrend, you sell at a Fibonacci resistance level. Ideally, you want to be looking at the highest and lowest swings.
Forex Trading Using Fibonacci Strategies
Fibonacci sequence ratios are used to predict retracement levels.
Retracements
The theory behind Fibonacci forex trading retracements is that after a significant market swing, price will return at least in part, to a particular point, before it continues in its initial direction.
So in practice, the numbers and formulas that feed into your retracement levels may allow you to predict future price points.
As we’ve seen above, each new number in the Finbonacci sequence is approximately 61.8 percent of the consecutive number. Which means that it is approximately 38.2% of the number after that, and approximately 23.6 percent of the number after that. These ratios: 61.8, 38.2, and 23.6 are our Fibonacci retracement levels.
On a chart, they are marked horizontally to make a grid within the parameters of the high and low levels chosen. When a trend is moving in a certain direction, the belief is that the price reversal point will coincide with the interception of these horizontal lines, before it resumes in the direction of the original trend. Fibonacci retracement levels help traders to identify potential price reversal points i.e points of opportunity.
Some models also use the 50 percent retracement level. Whilst it is not a Fibonacci ratio, it is widely acknowledged to be an important potential turning point as recognised in Dow theory.
The theory behind why trends unfold in this manner, is that human behaviour inherently follows the ratios of the Fibonacci sequence i.e. if a trend is moving too quickly in one direction, the market will respond relative to the ratios outlined in the sequence.
Extensions
The next step is supplementing your forex trading strategy with extension levels. Extensions use Fibonacci numbers and patterns to determine profit taking points.
Extensions continue past the 100% mark and indicate possible exits in line with the trend. For the purposes of using Fibonacci numbers for day trading forex, the key extension points consist of 161.8%, 261.8% and 423.6%.
Fibonacci Forex Trading Strategies In Action
Examples of forex trading strategies that use Fibonacci ratios include:
- Buying close to the 50 percent point with a stop-loss order just under the 61.8 percent mark
- Buying close to the 38.2 percent retracement point with a stop-loss order just under the 50 percent mark
- In a sell position towards the top of a substantial swing, using the Fibonacci retracement levels as profit collecting points
Limitations
Fibonacci retracement levels are not a guarantee. Whilst useful indicators, Fibonacci forex trading levels cannot actually guarantee a pivot point. The price may not reverse at a Fibonacci level or any other estimated level for that matter. They can be used to identify areas of interest but cannot guarantee a specific point of change.
It is also worth noting that when looking at small price movements, Fibonacci levels may not offer much insight. When levels are very close together it can seem that every point is important. They are best used on larger swings.
Furthermore, using Fibonacci tools is somewhat subjective. In a single day there will be multiple price swings, meaning that not everyone will be connecting the same two points. To help you identify areas of importance, draw retracement levels on all major price swings and look out for areas with a cluster of Fibonacci levels.
Our recommendation is to always use Fibonacci forex trading strategies in combination with other tools and insights. Trend indicators such as moving averages or Bollinger bands are useful in determining the direction of an asset whilst relative strength index and Bulls and Bears powers are often used to determine whether an asset has been overbought or oversold.
Broker Tools
When forex trading using Fibonacci strategies, the numbers, formulas, ratios and patterns can appear daunting.
However, advanced charting software will do the heavy lifting for you, offering retracement and extension level tools. So make sure you choose a broker whose software you’re comfortable using.
As with learning any new forex strategy, the more resources you can get your hands on the better. Therefore, it’s worth exploring whether your broker offers any Fibonacci forex trading strategy guidance, be it through PDFs or tutorial videos.
YouTube can also be a great way to see the numbers and patterns being applied in real life examples.
For further guidance, see our forex broker reviews.
Final Word On Fibonacci Forex Trading
Trading forex with Fibonacci strategies uses ratios and formulas to determine where support and resistance are likely to occur. Whilst the sequence itself can seem daunting, its application to forex day trading is relatively simple. Fibonacci forex trading strategies are widely used by retail and corporate investors and most investing platforms offer the feature as standard.
Of course, every trader is different and there are no guaranteed returns with a Fibonacci forex trading strategy. With that in mind, always consider retracements and extensions as tools to help inform your broader market angle.
FAQs
When Is The Best Time To Use A Fibonacci Forex Trading Strategy?
The Fibonacci forex trading technique is most effective when the market is trending. Price action is often most prevalent when the market opens and closes.
What Do You Need From A Broker To Use A Fibonnaci Forex Trading Strategy?
Top brokers will provide easy-to-use software with dedicated retracement and extension tools.
What Is The Best Way To Understand The Fibonacci Ratios?
Before you start trading forex with real money, open a demo account at a broker and play around with the Fibonacci numbers, patterns and formulas.
What Are The Limitations Of Using A Fibonacci Forex Trading Strategy?
Fibonacci levels cannot pinpoint an exact entry level. They only provide an estimated entry area. With that in mind, they should inform but not dictate your forex trading decisions.
Can A Fibonacci Forex Trading Strategy Work Alongside Other Techniques?
Yes, forex trading using Fibonacci & Elliott Wave PDFs are one good example.