Indicators are there to help make easy the work of a trader. This will only happen when you learn how they are used. Indicators like the Fibonacci don’t need to be downloaded and inserted into your mt4. You only have to use them during trading when needed. They come with the mt4 platform. You just have to click on the button then use them. Once being used they will be displayed on the trading chart.
The Fibonacci indicator analyses and gives ratios that are used in the forecasting of market activities. It uses the additive numerical series known as the Fibonacci sequence.
The Fibonacci sequence is formed by adding a number to its previous number. For example 0,1,1,2,3,5,8,13,21,………. .If you look at the sequence you will notice that each of the number results from adding the previous two numbers.eg 3 results from 1+2.
If the ratio of any of the terms in the series to the next term higher than it, is obtained it will asymptotically tend to 0.618 which is known as the Fibonacci ratio. Also the ratio of any of the terms to the next term that is lower than it, asymptotically tends to 1.618 which if observed closely is the inverse of the Fibonacci ratio.
Since the financial markets demonstrates the Fibonacci proportions in various ways, then then the Fibonacci indicator can act as a tool of calculating price targets and placing stops (losses and profits).
This indicator is used mostly to trade price corrections especially during news. After the market has reacted to news then the Fibonacci can be used to estimate up to what level the prices will retrace to. This is by for placing a stop below the expected retracement level.
Using the Fibonacci indicator
There two main forms of Fibonacci’s that are the retracements and Fibonacci profit targets.
The retracements show you the lowest points to buy in the direction of an uptrend during a short term fall back of prices while the shows where the trend will move to on the current market trend before reversing or stalling.
When using your Fibonacci indicator you just have to click on the Fibonacci button at the top right corner and then click at the bottom of the candle that have just formed. Then hold and drag to the end of the candle
Fig.1.using the Fibonacci indicator
Looking at the chart above the Fibonacci was drawn after the market reacted largely over a short period of time. The retracement levels are used to open a trade which in this case would be a buy order. It is advisable to open a trade at the 50% level or lower. Then once the retracement levels are obtained then then the Fibonacci profit target level are displayed. You should place your take profit at the lowest level which in our case is at 1.382.
The Fibonacci indicator is used in the direction of the trend and mostly when the market takes a sharp movement on the opposite direction after consolidating over a long period. Open demo account to test this indicator.
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