How to build Fibonacci levels on Forex right
Many successful trading tactics are based on levels. Therefore, it is important for trader to know how to build levels on Forex right. The price on the foreign exchange market stands still rarely for a long time. Quotations usually make constant fluctuations, leading to a change in their values. Therefore, it is rather difficult to understand which direction the price is going to move in the near future.
- Method of building of resistance and support levels in the Forex market
- How to set the level on Forex
- Instruction for compiling of Fibonacci levels on Forex
However, there are special tools that allow you to determine with great accuracy its possible direction of motion. One of the most popular is the levels. There are the following types of levels in the foreign exchange market:
- levels of support and resistance;
- Fibonacci levels (or grid).
Method of building of resistance and support levels in the Forex market
Sometimes market takes a long time in one direction. And it happens that for a while it seems to be on the trail. At such moments on the chart, price clusters are formed, called local extremes. There are two types of extremes in the market:
- hollows (minimal);
- peaks (highs).
Extremes are formed as a result of the fact that in these places the price is losing momentum, thanks to which it has been able to move to this very moment. The strength of the price is usually attached to the volume of open orders. However, after a while traders satisfied with the profit start to close them. And deprive the price of the right amount.
The areas of the schedule where extremes are formed have the property to unfold the price. She does not have enough strength to go further: traders do not believe in the continuation of the movement but, on the other hand, they are influenced by those who want to move it in the opposite direction. Therefore, very often when approaching the zone of extremes, the price turns back.
How to set the level on Forex
Levels are carried out along peaks and hollows. When the price turns out to be higher than the level, the level is supported and does not allow the price to fall further, forcing rebounding. When the price is below the level, the level turns into resistance and does not allow the price to rise, forcing to declining.
There are several ways to build levels on Forex. A number of experts advise you to hold levels strictly in the shade of candles, while others, vice versa, teach them to be drawn only on the bodies of candles. There are those who claim that it is correct when the levels pass through the maximum zone of price accumulation.
When the price away from locals, they lose their power. They are formed mainly on junior time frames. Historical live on the market for a long time, they are known and taken into account by all market participants, even if the price has not approached them for a long period. Appear on the senior time frames.
The levels’ strength depends on the number of rebounds from the price. The harder the price to break through the level and the more unsuccessful attempts it takes, the stronger the level is considered.
Instruction for compiling of Fibonacci levels on Forex
Fibonacci levels are an efficient and effective trading tool. It is used to identify the end of correction of the trend and determine the location of opening orders.
In the Forex market how to build Fibonacci levels is also not a uniform technique. Fibonacci levels are a grid, which is stretched on the trend observed at the moment. With an ascending trend, the net is drawn from the lower depression to the upper peak, and from the top peak to the bottom depression when it descends.
Differences among experts are in what particular point to pull the grid. Some suggest starting with the shadows of the candles, others with the bodies. On the junior time frames such a difference is not important, but for the elder ones it is.
Fibonacci levels, in fact, are support/resistance. The most commonly used levels are 23.6 and 38.2. The price bounces from them most often and the correction ends on them.
If the price overcomes these levels and in addition breaks the levels of 50 and 61.8, then, most likely, the correction will turn into a new trend.
Levels of support resistance and Fibonacci have a high degree of development. Usually in 90 cases out of 100 the price bounces from them. Therefore, knowing how to properly build levels on Forex, you can very simply get a stable profit.