We have already presented the Fibonacci levels in another article and have listed some strategies. These are support and resistance lines, which are particularly useful for corrections. The 50s and possibly the 61.8 Fibo level are the most important, since the break of these supports can indicate a change in the trend direction.
Warning: This does not apply, however, in the context of a bottom or top formation. With reversals developing, the prices often return very close to the low or high, usually up to the 92.6 Fibo level. This can be particularly unfavorable for the trader if he is assuming the continuing trend and has not previously recognized the top or bottom formation. Tip: An emerging top or bottom formation is usually initiated by dynamic counter-movements in the trend. The trader should be aware of this at the latest.
Analysis and trading in several steps
The current exchange rate of the British pound against the US dollar, or GBP / USD for short, has increased in recent days due to the positive outcome of the UK election a dynamic run. Initial skepticism, which can be clearly seen in the price, has been completely made up for, and the currency pair is currently breaking all resistance.
What is immediately striking: the resistance between $ 1.54-1.55 each British Pound coincides with the 38.2 Fibo level. Another indication that the Fibo levels have their justification.
- So in the first step we look at the long-term chart and identify relevant resistances that have been broken.
- In the next step, we wait for the correction or the pull-back to the support line as usual.
- In the 15-minute chart next to it, we see this consolidation clearly and can see how it is on the 23.6 Fibonacci -Level is supported. A break below would cause further downward pressure.
- However, as long as the 50s Fibonacci level in the 15-minute chart has not broken down, we expect the trend to continue.
- We remain now to decide at which level we want to buy call options. At this point, experience is the only decisive factor. Depending on the price dynamics, the trader must be able to assess whether the consolidation is going lower or whether the price is already rising from here.
Step 5 is, as is so often the case, especially in binary trading Options the crucial. Why? If you trade other products, you have the choice to hedge yourself below the Fibonacci level with a stop loss. Since the loss would be so minimal, the trader could repeat the tactic up to the 50s Fibo level.
In the case of binary options, the trader would have to choose a very low investment amount each time. Alternatively, he can reduce this disadvantage by choosing the right term. In our case, he should choose a term that can both fall below the 23.6 Fibo level and resume the upward trend. Since the upside potential in GBP / USD is very broad, a term of at least eight to twelve hours could be plausible. So the course has a certain amount of time to correct and at the same time the opportunity to exploit its potential upwards.
Fibo levels have their justification in market technology. Above all, they can be used equally on long-term and short-term charts. The above example illustrates this fact. Fibo levels represent relevant support and resistance and serve their purpose particularly in correction trading, but can also be used in other ways.
Nevertheless, a good portion of experience and intuition is also important in the end for Fibo levels, because indicators are only an aid in assessing the further course of the course. They cannot guarantee a 100 percent assessment either.
Fibo levels are, however, ideal for implementing short-term trading strategies. The chosen term should be considered when trading binary options. If it turns out that the Fibo level does not hold, there should at least be enough time left for the subsequent levels to hold.
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