The Best Forex indicator No Repaint, Fibonacci retracement
The Fibonacci ratio was first introduced by a medieval mathematician from Italy. His name is Leonardo Fibonacci from the city of Pisa.
He introduces a series of numbers whose ratio is in proportion to forms in nature. He also involved this number in calculating the breeding of rabbits in ideal situations. Later, this series is known as the Fibonacci sequence or Fibonacci number.
The series are: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, … and so on, where the way to calculate is by adding the first and second numbers and so on
This forex indicator is one indicator of no repaint and is included in the technical forex indicator category, and is also one of the best indicators
From the series, it is found that there is a ratio that is mostly found in each form in this universe, which is approximately 1: 1.618 or 0.618: 1. This ratio is then called the “golden ratio”.
Application in Trading: Fibonacci Retracement
You don’t need to calculate the Fibonacci ratio at all when trading. MetaTrader trading platform has provided a tool that really helps us to apply this Fibonacci heritage instantly. The name of the tool is the Fibonacci retracement.
Traders use the levels given by the Fibonacci retracement to help determine the potential range of areas as support and resistance. This tool can be used properly when the market is in a “trending” condition, both when it is uptrend and downtrend, but it is less effective if applied when the market is in a sideways condition.
The basic concept of using a Fibonacci retracement is to look for opportunities to buy when prices are in the range of support. Conversely, you can look for sell opportunities when the price is in the range of resistance obtained from the Fibonacci retracement.
To be able to find retracement levels, you must first find significant highs and lows. We call these points “swing high” and “swing low”.
On movements in the uptrend, what you do is draw the Fibonacci retracement from the swing low to swing high as seen in the image below.
Conversely, on movements in a downtrend, the way to do is to draw a Fibonacci retracement from swing high to swing low as seen in the image below.
Can be seen in the two images above that the Fibonacci levels we use in trading are levels of 0.0%, 23.6%, 38.2%, 50.0%, 61.8%, 76.4% and 100.0%. These levels are used as references or references to determine the area of support and resistance.
By using this Fibonacci retracement, you can also take several levels to make your reference area useful for determining entry levels. Popular levels are 38.2%, 50.0% and 61.8%. In the range of these levels, buy signals often appear or sell with high accuracy.
The concept of Fibonacci Retracement
Fibonacci retracement indicators of Forex no repaint adhere to the temporary reversal of a trend. By calculating the percentage of the retracement that occurs according to the Fibonacci number, you will get price levels where the price will likely reverse.
Step to Draw the Fibonacci Retracement point:
- Place the level 100% at the starting point. At that point chart is the highest point of a downtrend that occurs.
- Place level 0% at the end point.At the chart is the lowest point where the downtrend has changed direction.
- Level 38.2% to 61.8% where prices are expected to reverse and continue the downward trend. This is the best place to enter a sell position.
Fibonacci retracement levels are actually an area for support and resistance levels. So, the reference area to look for a sell signal is actually a resistance area. Thus, the reference area to look for buy signals is actually the support area.
The strategy is similar to bounce trading. We waiting for a pullback to the reference area and look for whether there is a buy or sell signal confirmation. But because you haven’t studied the buy or sell signals, for the time being, you just use the Fibonacci retracement first. When price movements are held in the reference area which in this case on 38.2% and 61.8%, you can try to sell or buy depending with the trend
As explained, you can use the Fibonacci reference area to look for buy levels. Of course, you do this when the trend is up. Below is an example of a chart based on the movement of GBP / USD
In the example image above, the Fibonacci retracement with the swing low reference at 1.59445 (100.0%) and swing high at 1.60630 (0.0%). The yellow area is your reference area, where this area will be the reflection confirmation area which is a buy signal for you. In the reference area there are three retracement levels, namely: 1.60177 (38.2%), 1.60038 (50.0%) and 1.59898 (61.8%). These three levels area support
Now you can see that the price has repeatedly tried to break the level of 1.59898 (61.8%). It appears that the level is “tested” four times, but always the candlestick closes above 1.59898. This is a sign that the support is strong and this is the time for you to buy, around 1.60038. The target is level 1.60630 (0.0%), while anticipation is at the exit point (1) or exit point (2). So if the price turns down, you will release your buy position on one of the two levels.
Why are there two exit points? Because often the breakdown of the 76.4% level is an initial indication that the direction of the trend will change, so many traders choose to “play safe” by closing their orders after the breaks. But the confirmation of the change in direction of the trend (reversal) is actually the level of 100.0%, so that traders who are more “brave” choose the level of the breakout as their exit point. So, this is more about trading styles and maybe also capital strength.
This strategy is actually just the opposite of the buy strategy. If the buy strategy is done at the time of the uptrend then this selling strategy is carried out during the downtrend.
Below is a graph of the EUR / USD movement.
At the moment you are waiting for a pullback to open sell reference area which is in the range between 1.37461 (38.2%) to 1.38995 (61.8%). In the middle, there is a level of 50.0% at the level of 1.38228. Remember, these three levels are resistance levels and your reference area is actually a resistance area.
Now a pullback has occurred and you can see that the price is in the reference area. Note that the price is unable to break above the level of 1.38995 (61.8%), and even goes down and breaks below 1.38228 (50.0%). This is a signal that you can sell with a target at the level of 1.34980 (0.0%). Don’t forget, the anticipation is on the exit point (1) or (2) if it turns out that your estimate is wrong.
You can bring up prices on the Fibonacci level placed on the chart by adding the character “% $” at the end of the description column.
By right-clicking on fibo properties, the window appears as shown below
With the addition of these characters, traders can be even easier to find out where the Fibonacci levels are more precisely.
- A mistake that often occurs inputting the starting point and end point. To fix this, try changing the description 0% to End and 100% to Start. By changing this, the trader is guaranteed not to be wrong again inputting the Fibonacci point.
- The higher the time-frame used in trading Fibonacci Retracements. Then the higher the accuracy of the Fibonacci levels used.
- Generally, professional traders are very concerned about the level of 50% on large time-frame charts such as Monthly. If the price approaches this level, a price reaction is certain and a trader can take the opportunity to enter a long-term position.
- Every transaction made is likely to fail. Fibonacci retracement levels can be broken and trend changes occur. At this time, stop-loss orders are very important to minimize losses.
A mistake In Using Fibonacci Retracement
Applying less accurate retracement levels can result in inappropriate entry and exit levels, which in the end could hurt traders.
There is some mistake in using the Fibonacci retracement that must be avoided, especially in forex trading. By knowing these mistake, it is expected that traders will avoid mistake an analysis with all the consequences.
Avoid Using Reference Point Combinations
Retracement is a correction of the current trend. With Fibonacci theory, every retracement level that matches the ratio number is the support or resistance levels that are used as reference entries or exits. Retracement levels are determined from reference points.
The highest level reference point is called swing high and the lowest level reference point is called swing low. Swing high and low swing reference points can be determined by the closing price (closing price) of the candlestick bar or the extreme price (highest or lowest) of the candlestick bar.
If you use the closing price as a reference for swing high (on the body bar candlestick), then the swing low reference point must be at the closing price as well. Likewise, if you use extreme prices, if swing high is at the highest point of the candlestick bar (upper tail), then swing low must be at the lowest point of the bar (lower tail).
In the example of the daily GBP / USD above, with swing high and swing low drawn from the tail to the tail (the highest price bar to the lowest price bar), it appears resistance occurs at the 50% retracement, which is at the level of 1.5925. While the body-to-tail reference point (the closing price of the upper bar to the lowest price bar below) the resistance is at the 61.8% retracement level or 1.6000.
Although resistance and support levels cannot be determined absolutely and surely, if you trade on a daily time frame basis in example (2), you might wait around 2 weeks longer to ensure a resistance level, compared to those using a tail to tail reference in example (1). In addition to (1), you have got a trading signal and can be a sell entry when the formed pin bar is confirmed by rejection on the 50% Fibo retracement resistance, while at (2) it may still be awaiting confirmation.
Resistance and support levels are very relative actually and not necessarily the case above, but by determining consistent reference points on the Fibonacci retracement, you will get a more accurate reference for support and resistance. You can also try with reference points at the closing price of the candlestick (body to body) bar.
Ignoring the Long-Term Trend
Long-term trends can be seen at a higher time frame. In using the Fibonacci retracement, it is recommended to always check the trend that occurs at the current time frame with a higher time frame, unless you are accustomed to trading with a high time frame. This needs to be done to avoid long-term trend prediction errors that can result in trading results not maximum, or even loss.
Below are examples of NZD / USD Daily and 1-hour, which are taken during the same trading time period:
If you are trading with a daily time frame, it is very likely that you will enter a sell level between 0.8450-0.8400, after the 38.2% and 50% Fibonacci retracement levels are broken. In addition, the doji candle formation that gets a rejection at the 23.6% Fibo retracement level is also a strong signal.
But it will be different if at the same time you are trading at 1-hour time frame. Here you are very likely to enter buy at the level of 0.8410-0.8435 after the 23.6% Fibonacci retracement levels and 38.2% are broken. In addition, the bullish morning star candle formation is a buy signal that is quite valid.
With the 1-hour time frame, you can only profit 50 pips or 60 pips, but it is not worth the 500 pips profit to 600 pips that you will get if you use a daily time frame.
Use Additional Indicators As a Fibonacci Retracement Confirmator
To avoid errors due to improper entry momentum, you can apply additional indicators to confirm Fibonacci retracement levels. The indicator commonly used is the type of oscillator (MACD, stochastic, or RSI). example:
From the example above it appears that it would be more accurate to open the position when the stochastic% K and% D lines intersect. The intersection of the two lines, or overbought and oversold conditions as the price breaks the Fibonacci Retracement levels, is the right momentum for the entry.
Avoid Using Fibonacci Retracement At Very Low Time Frames
Very low time frames such as 1 minute will contain a lot of noise or unreliable signals. In addition to very high volatility, the inaccuracy of resistance or support levels from the Fibonacci retracement is very large.
In addition to trend prediction errors that can occur as in point (2), you will have difficulty determining the exit level because usually, the pip movement is relatively small. The application of the Fibonacci retracement at a very low time frame can be very risky and ineffective.