Explanation of Fibonacci lines and how to use them in technical analysis and knowledge of market trends

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One of the most important means of technical analysis that is of interest to forex market traders is Fibonacci lines or indicators, as it is one of the most popular and widespread indicators among forex beginners or professionals, because all brokerage firms provide them on trading platforms, whether they are listed on mobile applications or directly on the Internet.

The importance of Fibonacci indicators

Fibonacci lines help the trader to understand and analyze the movements of the currency pairs he trades and the trends of the markets as well, and also helps him to identify the support and resistance points from the chart, thus it is easy for him to identify the entry and exit points and the exit strategy as well if you have not identified them before.

How to draw Fibonacci lines

Fibonacci lines are drawn as a sequence consisting of the following numbers: 144,89,55,34,21,13,8,5,3,2,1,1,0, and so on, the sequence continues.

When examining the previous sequence, we find that the sum of each two numbers is equal to the next number and this sequence continues in the same manner, but the Fibonacci rates are expressed and plotted through the following ratios: 23.6%,38.2%,50%,61.8% and 100% and they are illustrated through the graph next one:

Fibonacci

Fibonacci

Previous chart:

It is a drawing of the Fibonacci lines for the pair of the British pound against the US dollar, where we determine the first point, which is the lowest point in the market, then we determine the second point, which is the highest in the market, and we extend it with a straight line to the first point, then the brokerage company calculates the percentage that appears on the trading platform.

In order to determine the support and resistance points from the chart, it must follow the recent movement of the currency pair and how close it is to one of the Fibonacci ratio lines, where the intersection of the Fibonacci ratio line with the pair’s movement line is the point of support or resistance, and through this it is possible to determine the support and resistance points as well as the entry points and get out.

That is why Fibonacci lines are considered one of the most important and accurate technical analysis tools that a trader uses to determine and evaluate his trades.

In fact, if the trader determines and draws the main Fibonacci lines for a trading day, the trader will benefit greatly from the trading ratios that will determine for him the points of support, resistance and retracements for a number of times and in the time frame that you will specify, and it is possible to determine the Fibonacci lines after hours or even many days.

How to benefit from drawing Fibonacci lines to make a profit?

After you drew the Fibonacci lines and the currency pair you are trading in a long-term open position rose, you should pay attention when the price level is approaching one of the lines, as it is possible that the price will regress and you will lose your profits, and in this case you should take a stop loss order at The price level is close to one of the Fibonacci lines or a little higher, and the Fibonacci lines are support points.

In other words, when the price level reaches one of the lines, the profits you have made are sufficient, and therefore you are supposed to close the trade, and wait until the price breaks the Fibonacci levels and another new deal can be opened, and this can be applied in case the price drops and therefore the Fibonacci lines are resistance points.

Also, you should keep in mind that when a line is broken, the price will go back to retest the level, so you should always be ready to face all circumstances.

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Mohamed Abdel Khaleq

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