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Utilizing Fibonacci Retracements in Forex Trading

Utilizing Fibonacci Retracements in Forex Trading

The forex trading world has been using technical analysis indicators to get the upper hand in trading the trends. Fibonacci retracements use ancient mathematical scripts to evaluate the price movements and help identify support and resistance levels.

Throughout history, mathematical proportions and ratios have been used and continue to be used in everything from determining the shape of snail shells to the construction of buildings. However, if you want to use Fibonacci’s mathematical principles to inform your forex trading strategy, you need to understand the retracement concepts.

Understanding Fibonacci Retracements

When using Fibonacci retracements in forex trading, the areas of support are indicated when the price stops decreasing and vice versa for when the price stops increasing. On the trading chart, Fibonacci retracement levels are drawn in close relation to the price of the asset to be evaluated. Hence, it appears as a horizontal line on the chat that works by identifying retracement levels for analysis purposes.

To determine these levels, the trendline connects between the high and low. Ratios established at 61.8%, 38.2%, and 23.6% stratify the vertical distance. 50% is commonly used as a retracement level in this method of analysis. These retracement levels are valuable for forex traders because they help us evaluate the price action to predict future price behavior.

Evaluating the price action using Fibonacci retracement will help you identify strategic opportunities to buy orders, set stop losses, target prices, and much more.

You can combine this concept with other indicators like Tirone levels, the Elliot wave theory, Gartley patterns, among others. Resistance and support levels can be seen after significant price movements. Unlike moving averages, Fibonacci retracement levels don’t change over time; they are static price levels.

Hence, the identification becomes simple using these retracement levels, allowing you to react very fast when a price level changes. Think of these levels as infection points where you can expect either a break or rejection in the price action.

Creating a Trading Strategy using Fibonacci Retracement

You can use Fibonacci retracements for a few trading strategies. For instance, in bullish or bearish price action, you can use 38.2% and 61.8% retracement levels to determine a continuation pattern, as well as correlation and pullback degrees. You can deploy a breakout strategy if the retracement appears to be active in indicating resistance or support levels.

You can also adopt another strategy using the 38.2% retracement level to take long positions using a stop-loss order below 50% retracement level. You can alternatively use the 61.8% level to place a stop-loss order and enter a long position at a 50% level.

Around the peak of a big move, you can also deploy Fibonacci retracement levels in short order and use the levels as take-profit marks. However, while Fibonacci levels are popular technical indicators being used in forex trading, they don’t consider variables that affect the price action like trading volume, volatility, and other crucial data points, which makes them limiting at revealing more about a trading pair.

They purely reflect an asset’s price on the chart in relation to the previous price. Therefore, we recommend using Fibonacci retracement levels with other technical information for accurate predictions.

According to the key ratios, if you use the retracement levels, you can set target prices or stop losses because you can measure and evaluate continuation patterns through Fibonacci numbers. Resist looking at the same levels because prices can just fall short or push past a level.

Give yourself leeway for any potential price fluctuations around these retracement levels with reference to stop and limit orders. The versatility of retracement levels is not limited to a single time frame but across different time frames. Hence, relying solely on the retracement levels to take a position in the forex market can be detrimental and frustrating.

In Conclusion

Managing and molding a trading strategy is never easy, but by appropriately handling certain basics, it can be more accessible. The forex market always moves in waves, and the patterns keep repeating over time. Fibonacci retracement levels will help you mark reversal points. To position yourself for larger margins and better performance, we recommend combining Fibonacci retracement levels with other technical analysis indicators and strategies.

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Forex Trading with EMA Trading Strategy

Forex Trading with EMA Trading Strategy

One of the oldest forms of technical analysis is the EMA (Exponential Moving Average). Most forex traders have used this indicator more types than they can count. To become a long-term forex trader, learning how to leverage the EMA trading strategy is the key to success.

Moving Averages are effective indicators, and EMA is an effective type of MA indicator used to trade in the forex market. Traders use the EMA strategy to identify predominant trends in the forex market because it provides support and resistance levels that help you effectively execute your trade.

The EMA strategy is a universal trading strategy that works for forex and stocks, currencies, indices, and cryptocurrencies. EMA tends to work for any time frame, which means you can use it on any preferred chart.

How to leverage the EMA formula when trading

On a price chart, the EMA is a line that uses a mathematical formula to smoothen the price action. The line shows the price average over a specific period of time. It tends to put more weight on the current price, making it more reliable since it reacts fast to any changes in the price data.

The EMA works to help reduce noise and confusion associated with everyday price action. It also smooths the price action to reveal the trend. Sometimes, it will reveal patterns you can’t see, making it more accurate and reliable in forecasting future changes in the forex market price.

To calculate the Simple Moving Average, we take the sum of the periods and then divide it by 20. To focus on the recent price, a multiplier is required because the MA formula is what brings the values together.

With EMA, the rule is that you are in an uptrend whenever the price trades above the MA, and as long as you remain above it, you should expect higher prices. This is also the case when you are trading below the EMA, you are in a downtrend, and as long as you are below it, you should expect lower prices.

The easiest way to capture the new trend is by using two EMAs as your entry filter. Using one MA within a more extended period and another within a shorter period will help automate your strategy, removing subjectivity from your trading process.

The EMA strategy tends to use the 20 & 50 periods, which is the most standard indicator on trading platforms. The aim is to wait for the price to trade above the 20 and 50 EMA. When the EMA crosses over, it adds weight to a bullish case. This happens when the 50-EMA crosses above because it creates an automatic buy or sells signal.

However, we recommend adding a new confluence to support your view to avoid a false breakout. Hence, it would be best to wait for the zone between 20 & 50 EMA to be tested a few times before you can look for buying opportunities. Here, more patience is required!

At least two successful retests are enough to help you decide how to develop the trend. Always keep in mind that no price is either too high to buy or too low to sell in trading. When you retest the zone for the third time, you can buy at the forex market because you have enough evidence that the bullish momentum holds and will continue to push the market higher.

Here, we recommend placing a protective stop loss of 20 pips below the 50 average because you are sure the trend is up. The trend tends to remain intact when you trade above both EMAs. After which, your next plan should be an exit strategy based on the EMA.

We recommend taking profit once you break and close below the 50 average. This is because you shouldn’t use the same exit technique as your entry one. The EMA formula allows you to take your profits at a time when the market is almost reversing.

In Conclusion

The EMA strategy in forex trading doesn’t necessarily help you predict the market but react to the current forex market condition, which is a wiser way to trade. This strategy will help you plot a much smother EMA to give you better entries and exits.

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Retracement trading strategy with essential parameters

One of the best Forex trading strategies is the floor traders’ method. The floor trader method is made to capture the continuing trend. Actually, it can be used for swing trading if the currencies are trending positively. The traders should have the thorough knowledge in trading so in order gain the knowledge you should learn it. If you want to trade using one of the best strategies, for instance, the floor traders’ strategy you must learn three important things related to it. We should say that it is concepts of floor traders’ strategies; they are such as retracement, moving averages for trend, and the trading signals for the reversal pattern. Let us learn the retracement concept of floor traders’ strategies in detail.

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