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
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1
FOREX.comActive Trader Program With A 15% Reduction In Costs
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$1000.01 Lots1:50NFA, CFTCForex, Stocks, Futures, Futures OptionsMT4, MT5, TradingView, eSignal, AutoChartist, TradingCentralWire Transfer, Credit Card, Debit Card, Visa, Mastercard, Skrill, Neteller, ACH TransferUSD, EUR, GBP, CAD, AUD, JPY, CHF, PLN -
2
NinjaTrader
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$00.01 Lots1:50NFA, CFTCForex, Stocks, Options, Commodities, Futures, CryptoNinjaTrader Desktop, Web & Mobile, eSignalACH Transfer, Debit Card, Wire TransferUSD -
3
Interactive Brokers
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$0$1001:50FCA, SEC, FINRA, CFTC, CBI, CIRO, SFC, MAS, MNB, FINMA, AFMStocks, Options, Futures, Forex, Funds, Bonds, ETFs, Mutual Funds, CFDs, CryptocurrenciesTrader Workstation (TWS), IBKR Desktop, GlobalTrader, Mobile, Client Portal, AlgoTrader, OmniTrader, eSignal, TradingCentralCheque, ACH Transfer, Wire Transfer, Automated Customer Account Transfer Service, TransferWise, Debit CardUSD, EUR, GBP, CAD, AUD, INR, JPY, SEK, NOK, DKK, CHF, AED, HUF -
4
IGForex trading involves risk. Losses can exceed deposits.
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$00.01 Lots1:30 (Retail), 1:250 (Pro)FCA, ASIC, NFA, CFTC, DFSA, BaFin, MAS, FSCA, FINMA, CONSOB, AFMCFDs, Forex, Stocks, Indices, Commodities, ETFs, Futures, Options, Crypto, Spread BettingWeb, ProRealTime, L2 Dealer, MT4, AutoChartist, TradingCentralPayPal, Wire Transfer, Mastercard, Credit Card, Visa, Debit CardUSD, EUR, GBP, CAD, AUD, JPY, ZAR, SEK, DKK, CHF, HKD, SGD -
5
OANDA USCFDs are not available to residents in the United States.
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$00.01 Lots1:50NFA, CFTCForex, Crypto with Paxos (Cryptocurrencies are offered through Paxos. Paxos is a separate legal entity from OANDA)OANDA Trade, MT4, TradingView, AutoChartistWire Transfer, Visa, Mastercard, Debit Card, ACH TransferUSD, EUR, GBP, CAD, AUD, JPY, CHF, HKD, SGD -
6
Videforex20% to 200% Deposit Bonus
$250$0.011:500Binary Options, CFDs, Forex, Indices, Commodities, CryptoTradingViewSkrill, Perfect Money, Bitcoin Payments, Neteller, Credit Card, Visa, Mastercard, Ethereum PaymentsUSD, EUR, GBP, AUD, RUB -
7
Capitalcore40% Deposit Bonus up to $2,500
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$100.01 Lots1:2000IFSAForex, Metals, Stocks, Cryptos, Futures IndicesWebTrader, ProEthereum Payments, Mastercard, Visa, Perfect Money, Bitcoin Payments, Debit Card, Credit Card, PayPalUSD -
8
Plexytrade120% Cash Welcome Bonus
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$500.011:2000CFDs, Forex, Indices, Stocks, Commodities, CryptoMT4, MT5Bitcoin Payments, Ethereum PaymentsUSD, EUR -
9
Plus500 USWelcome Deposit Bonus up to $200Trading with leverage involves risk.
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$1000.0 LotsCFTC, NFAFutures on Forex, Commodities, Cryptos, Indices, Interest RatesWebTrader, AppACH Transfer, Wire Transfer, Debit Card, Mastercard, VisaUSD -
10
Coinexx100% Deposit Welcome Bonus
0.001 BTC0.01 Lots1:500Forex, Commodities, Indices, CryptocurrenciesMT4, MT5Bitcoin Payments, Ethereum PaymentsUSD
Here is a short summary of why we think each broker belongs in this top list:
- FOREX.com - FOREX.com continues to uphold its stature as a premier FX broker, offering over 80 currency pairs and boasting some of the most competitive fees in the industry. With EUR/USD spreads dipping as low as 0.0 and $5 commission per $100k, it stands out. Moreover, its SMART Signals help to identify price behaviors across numerous major currency markets.
- NinjaTrader - NinjaTraders supports the trading of popular currencies including the EUR/USD. The software also offers advanced features to streamline the trading experience, including complex order types like market if touched (MIT) and one cancels other (OCO).
- Interactive Brokers - IBKR presents an extensive range of over 100 major, minor, and exotic forex pairs, surpassing the offerings of nearly all leading alternatives, though not CMC Markets. Forex trading occurs over multiple platforms and boasts institutional-grade spreads starting from 0.1 pips and 20 complex order types, including brackets, scale, and one-cancels-all (OCA) orders.
- IG - IG offers an above-average suite of 80+ currency pairs on its proprietary web platform, mobile app or MetaTrader 4, with more advanced charts and forex analysis tools available on the ProRealTime software. Forex spreads are competitive based on tests, starting from 0.1 pips on majors like the EUR/USD.
- OANDA US - OANDA offers a diverse selection of 68 currency pairs, more than many alternatives. The broker’s in-house platform offers superb day trading capabilities via powerful TradingView charts, including 65+ technical indicators and 11 customizable chart types.
- Videforex - Videforex offers trading on 35 currency pairs through leveraged CFDs with spreads from 0.1 pips. Alternatively, traders can use binaries to speculate on upward/downward price movements with payouts up to 98%. Integrated technical analysis, economic calendars, and market news, all available within the platform, help support FX trading decisions.
- Capitalcore - Capitalcore offers a modest selection of around 35 currency pairs, which is very limited compared to CMC Markets' 300+ pairs. Spreads are lowest on the VIP account (0.4 pips on EUR/USD), but become less competitive in Classic and Silver accounts (1.5 pips on EUR/USD), and there aren't any zero spreads.
- Plexytrade - Plexytrade presents major, minor, and exotic forex pairs for trading, with leverage reaching 1:2000 and raw spreads starting from 0.0 - an enticing proposition for advanced traders seeking gains from minor price shifts. However, the downside lies in the limited selection, with only 41 currency pairs available, significantly fewer than the 100+ forex assets at IG.
- Plus500 US - Plus500 US offers futures trading on a small selection of 13 currencies, including popular pairs like the EUR/USD and GBP/USD. Day trading margins are competitive, starting from $40, while the educational resources do an excellent job of breaking down the basics of forex futures for new traders.
- Coinexx - Coinexx offers an excellent selection of 70+ major, minor and exotics currency pairs, presenting diverse opportunities with a forex calculator to aid trading decisions. It’s also one of a select few brokers to support forex trading on the ActTrader platform, alongside MT4 and MT5.
Fibonacci Forex Trading Comparison
| Broker | Forex Assets | EUR/USD Spread | Forex App Rating | Minimum Deposit | Regulator |
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80+ | 1.2 | / 5 | $100 | NFA, CFTC |
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50+ | 1.3 | / 5 | $0 | NFA, CFTC |
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100+ | 0.08-0.20 bps x trade value | / 5 | $0 | FCA, SEC, FINRA, CFTC, CBI, CIRO, SFC, MAS, MNB, FINMA, AFM |
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80+ | 0.8 | / 5 | $0 | FCA, ASIC, NFA, CFTC, DFSA, BaFin, MAS, FSCA, FINMA, CONSOB, AFM |
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65+ | 1.6 | / 5 | $0 | NFA, CFTC |
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35+ | 0.1 | / 5 | $250 | - |
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35+ | 0.4 | - | $10 | IFSA |
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40+ | 0.7 | / 5 | $50 | - |
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13 | 0.75 | / 5 | $100 | CFTC, NFA |
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60+ | 0.0 | / 5 | 0.001 BTC | - |
FOREX.com
"FOREX.com remains a best-in-class brokerage for active forex traders of all experience levels, with over 80 currency pairs, tight spreads from 0.0 pips and low commissions. The powerful charting platforms collectively offer over 100 technical indicators, as well as extensive research tools."
Christian Harris, Reviewer
FOREX.com Quick Facts
| Bonus Offer | Active Trader Program With A 15% Reduction In Costs |
|---|---|
| GBPUSD Spread | 1.3 |
| EURUSD Spread | 1.2 |
| EURGBP Spread | 1.4 |
| Total Assets | 80+ |
| Leverage | 1:50 |
| Platforms | MT4, MT5, TradingView, eSignal, AutoChartist, TradingCentral |
| Account Currencies | USD, EUR, GBP, CAD, AUD, JPY, CHF, PLN |
Pros
- With over 20 years of experience, excellent regulatory oversight, and multiple accolades including runner-up in our 'Best Forex Broker' awards, FOREX.com boasts a global reputation as a trusted brokerage.
- Alongside a choice of leading platforms, FOREX.com offers a superb suite of supplementary tools including Trading Central research, SMART Signals pattern scanner, trading signals, and strategy builders.
- There’s a wealth of educational resources including tutorials, webinars, and a stacked YouTube channel to help you get educated in the financial markets.
Cons
- FOREX.com's MT4 platform offers approximately 600 instruments, significantly fewer than the over 5,500 available on its non-MetaTrader platforms.
- Despite increasing its range of instruments, FOREX.com's product portfolio is still limited to forex and CFDs, so there are no options to invest in real stocks, real ETFs or real cryptocurrencies.
- There’s no negative balance protection for US clients, so you may find yourself owing more money than your initial deposit into your account.
NinjaTrader
"NinjaTrader continues to meet the demands of active futures traders looking for low fees and premium analysis tools. The platform hosts top-rate charting features including hundreds of indicators and 10+ chart types."
Tobias Robinson, Reviewer
NinjaTrader Quick Facts
| GBPUSD Spread | 1.6 |
|---|---|
| EURUSD Spread | 1.3 |
| EURGBP Spread | 1.6 |
| Total Assets | 50+ |
| Leverage | 1:50 |
| Platforms | NinjaTrader Desktop, Web & Mobile, eSignal |
| Account Currencies | USD |
Pros
- NinjaTrader is a widely respected and award-winning futures broker and is heavily authorized by the NFA and CFTC
- You can get thousands of add-ons and applications from developers in 150+ countries
- Low fees are offered, with $50 day trading margins & commissions from $.09 per micro contract
Cons
- There is a withdrawal fee on some funding methods
- Non forex and futures trading requires signing up with partner brokers
- The premium platform tools come with an extra charge
Interactive Brokers
"Interactive Brokers is one of the best brokers for advanced day traders, providing powerful charting platforms, real-time data, and customizable layouts, notably through the new IBKR Desktop application. Its superb pricing and advanced order options also make it highly attractive for day traders, while its diverse range of equities is still among the best in the industry."
Interactive Brokers Quick Facts
| GBPUSD Spread | 0.08-0.20 bps x trade value |
|---|---|
| EURUSD Spread | 0.08-0.20 bps x trade value |
| EURGBP Spread | 0.08-0.20 bps x trade value |
| Total Assets | 100+ |
| Leverage | 1:50 |
| Platforms | Trader Workstation (TWS), IBKR Desktop, GlobalTrader, Mobile, Client Portal, AlgoTrader, OmniTrader, eSignal, TradingCentral |
| Account Currencies | USD, EUR, GBP, CAD, AUD, INR, JPY, SEK, NOK, DKK, CHF, AED, HUF |
Pros
- IBKR is one of the most respected and trusted brokerages and is regulated by top-tier authorities, so you can have confidence in the integrity and security of your trading account.
- The TWS platform has clearly been built for intermediate and advanced traders and comes with over 100 order types and a reliable real-time market data feed that rarely goes offline.
- IBKR continues to deliver unmatched access to global stocks with tens of thousands of equities available from 100+ market centres in 24 countries.
Cons
- TWS’s learning curve is steep, and beginners may find it challenging to navigate the platform and understand all the features. Plus500's web platform is much better suited to new traders.
- Support can be slow and frustrating based on tests, so you might find it challenging to reach customer service representatives promptly or encounter delays in resolving issues.
- You can only have one active session per account, so you can’t have your desktop program and mobile app running simultaneously, making for a sometimes frustrating trading experience.
IG
"IG continues to provide a comprehensive package with an intuitive web platform and best-in-class education for beginners, plus advanced charting tools, real-time data, and fast execution speeds for experienced day traders."
IG Quick Facts
| GBPUSD Spread | 0.9 |
|---|---|
| EURUSD Spread | 0.8 |
| EURGBP Spread | 0.9 |
| Total Assets | 80+ |
| Leverage | 1:30 (Retail), 1:250 (Pro) |
| Platforms | Web, ProRealTime, L2 Dealer, MT4, AutoChartist, TradingCentral |
| Account Currencies | USD, EUR, GBP, CAD, AUD, JPY, ZAR, SEK, DKK, CHF, HKD, SGD |
Pros
- IG offers an extensive collection of professional and engaging educational resources, including webinars, articles, and analysis
- The ProRealTime advanced charting platform is free as long as certain modest monthly trading activity requirements are met
- IG is amongst the best in terms of its range of instruments, which includes stocks, forex, indices, commodities, and cryptocurrencies, plus recently added US-listed futures and options, providing ample diversification opportunities
Cons
- While there is negative balance protection in the UK and EU, there is no account protection or guaranteed stop losses for US clients
- Stock and CFD spreads still trail the cheapest brokers like CMC Markets based on tests
- IG applies an inactivity fee of $12 per month after 2 years, deterring casual investors
OANDA US
"OANDA remains 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."
OANDA US Quick Facts
| GBPUSD Spread | 3.4 |
|---|---|
| EURUSD Spread | 1.6 |
| EURGBP Spread | 1.7 |
| Total Assets | 65+ |
| Leverage | 1:50 |
| Platforms | OANDA Trade, MT4, TradingView, AutoChartist |
| Account Currencies | USD, EUR, GBP, CAD, AUD, JPY, CHF, HKD, SGD |
Pros
- Seasoned day traders can access industry-leading tools, including an MT4 premium upgrade and advanced charting provided by MotiveWave
- There's a strong selection of 68 currency pairs for dedicated short-term forex traders
- The proprietary OANDA web platform continues to deliver a highly competitive charting environment, including 65+ technical indicators powered by TradingView
Cons
- It's a shame that customer support is not available on weekends
- The range of day trading markets is limited to forex and cryptos only
- There's only a small range of payment methods available, with no e-wallets supported
Videforex
"Videforex will serve traders looking for a no-frills, easy-to-use platform to speculate on the direction of popular financial markets through binaries. With a sign-up process that takes a matter of minutes and a web-accessible platform, getting started is a breeze. "
Videforex Quick Facts
| Bonus Offer | 20% to 200% Deposit Bonus |
|---|---|
| GBPUSD Spread | 0.1 |
| EURUSD Spread | 0.1 |
| EURGBP Spread | 0.1 |
| Total Assets | 35+ |
| Leverage | 1:500 |
| Platforms | TradingView |
| Account Currencies | USD, EUR, GBP, AUD, RUB |
Pros
- Videforex is one of the few brokers with 24/7 multilingual video support, providing comprehensive assistance for active traders.
- Traders can earn up to 98% payouts on 100+ assets with the broker’s binary options, bringing it in line with competitors like IQCent.
- Videforex regularly runs trading contests, offering practice opportunities and cash prizes to beginners and experienced traders, with position sizes from just ¢0.01.
Cons
- The client terminal needs improvements based on our latest tests, sporting sometimes slow and unresponsive widgets which could dampen the experience for day traders.
- The absence of any educational tools is a serious drawback for newer traders who can find blogs, videos and live trading sessions at category leaders.
- Videforex lacks authorization from a trusted regulator, meaning traders may receive little to zero safeguards like segregated client accounts.
Capitalcore
"The major selling points of Capitalcore are its high leverage options up to 1:2000 and zero commission or swap fees. However, its weak regulatory oversight from the IFSA and non-existent education place it far behind the top brokers."
Capitalcore Quick Facts
| Bonus Offer | 40% Deposit Bonus up to $2,500 |
|---|---|
| GBPUSD Spread | 0.5 |
| EURUSD Spread | 0.4 |
| EURGBP Spread | 0.5 |
| Total Assets | 35+ |
| Leverage | 1:2000 |
| Platforms | WebTrader, Pro |
| Account Currencies | USD |
Pros
- The Capitalcore platform provides comprehensive charting tools and a wide range of 150+ technical indicators, ideal for detailed market analysis.
- The support team are available 24/7 and responded within minutes during testing with helpful responses.
- Unlike most brokers, Capitalcore offers an unlimited demo account that takes under 5 minutes to open.
Cons
- The web platform was inconsistent during testing, with occasional technical glitches that meant the trading platform wouldn’t load.
- Platform support is limited to proprietary software, so there's no integration with the market-leading MetaTrader or cTrader, which offer built-in economic news and support automated trading.
- Capitalcore’s threadbare education and research seriously trail category leaders like IG, making it less suitable for aspiring traders.
Plexytrade
"Plexytrade is a newcomer in the brokerage scene with attention-grabbing features like 1:2000 leverage, zero spreads on select instruments and fast execution speeds of less than 46 milliseconds. However, the absence of regulation is a significant concern, while the non-existent research and educational tools place it far behind industry frontrunners."
Plexytrade Quick Facts
| Bonus Offer | 120% Cash Welcome Bonus |
|---|---|
| GBPUSD Spread | 0.8 |
| EURUSD Spread | 0.7 |
| EURGBP Spread | 1.1 |
| Total Assets | 40+ |
| Leverage | 1:2000 |
| Platforms | MT4, MT5 |
| Account Currencies | USD, EUR |
Pros
- There are various VPS packages starting from $50 per month, but they become complimentary once specific deposit thresholds are reached.
- Despite lacking regulation, Plexytrade provides negative balance protection and reinforces safety protocols by holding client funds in segregated accounts.
- Plexytrade offers among the highest leverage we’ve seen, up to 1:2000, catering to advanced traders willing to forego regulatory protections.
Cons
- Plexytrade lacks regulation in major jurisdictions, significantly increasing the risks of opening an account and depositing funds.
- Deposits and withdrawals are exclusively facilitated through cryptocurrencies, as Plexytrade does not support bank cards, bank wire transfers, or e-wallets.
- There are no research and educational materials, falling short of alternatives like IG, while access to the economic calendar is restricted to clients with balances of $500.
Plus500 US
"Plus500 US stands out as an excellent choice for beginners, offering a very user-friendly platform, low day trading margins, and access to the Futures Academy to enhance trading skills."
Michael MacKenzie, Reviewer
Plus500 US Quick Facts
| Bonus Offer | Welcome Deposit Bonus up to $200 |
|---|---|
| EURUSD Spread | 0.75 |
| Total Assets | 13 |
| Platforms | WebTrader, App |
| Account Currencies | USD |
Pros
- Plus500 US excels for its low fees with very competitive day trading margins and no inactivity fees, live data fees, routing fees, or platform fees
- The Futures Academy is an excellent resource for new traders with engaging videos and easy-to-follow articles, while the unlimited demo account is great for testing strategies
- The trading app provides a terrific user experience with a modern design, a clean layout and mobile-optimized charts
Cons
- Although support response times were fast during tests, there is no telephone assistance
- Despite competitive pricing, Plus500 US lacks a discount program for high-volume day traders, a scheme found at brokers like Interactive Brokers
- While Plus500 US continues to broaden its investment offering, it's currently restricted to around 50+ futures with no stocks
Coinexx
"Coinexx best serves short-term traders willing to foregoes regulatory protections in return for highly-leveraged CFDs and trading accounts, deposits and withdrawals processed in cryptos like BTC. "
Coinexx Quick Facts
| Bonus Offer | 100% Deposit Welcome Bonus |
|---|---|
| GBPUSD Spread | 0.0 |
| EURUSD Spread | 0.0 |
| EURGBP Spread | 0.0 |
| Total Assets | 60+ |
| Leverage | 1:500 |
| Platforms | MT4, MT5 |
| Account Currencies | USD |
Pros
- The virtual private server (VPS), hosted near the firm’s data center in Amsterdam, offers 24/7 connectivity, low latency and 99.99% uptime, catering to algo traders.
- Coinexx is one of a limited pool of brokers to support the ActTrader platform, which is highly customizable with detachable widgets, as well as 48 indicators, 11 timeframes, and price quotes up to 8 decimal places.
- Coinexx uses an ECN model that facilitates ultra-tight spreads from 0 pips, which alongside high leverage up to 1:500, may serve fast-paced, high-volume trading strategies.
Cons
- Aside from 7 calculators (forex, margin, pip, currency, commission, swap, PnL), Coinexx offers very little in terms of additional tools, with no education or research features to support traders.
- Despite operating for over 7 years, Coinexx still hasn’t secured any regulatory approvals, respected industry awards or the full confidence of our experts.
- Although it supports near-instant account funding in 25+ cryptos, the absence of fiat deposit options at Coinexx will be severely limiting for many traders.
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
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?
The best forex day trading platforms and 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.