The entire concept of binary options trading depends on the proposition of yes or no. That’s because this all-or-nothing trading market requires traders to correctly speculate the price movement of an asset.
If traders do not have the proper market knowledge and are not familiar with the asset, they might not predict the price movement. However, if they are familiar with the asset, then they can win a huge payout.
One thing that plays an essential role in binary options trading is indicators. Professionals and beginners can get an exact idea of the market entry and exit points using technical indicators.
Ideally, technical indicators are available for knowing about volatility, volume, trend, and momentum. Indicators for different categories work differently. So, you must carefully choose a trading tool depending on your trading style, the nature of the asset, and need.
Fibonacci Retracement should be your pick among the available options if you want to predict future price reversal. This trading indicator is designed for people who want to know the accurate price movement of an asset.
While this tool is not for everyone, you can use it if it meets your requirements. But for doing that, you must know this trading tool inside out. You should know how it works? What are its different retracement levels? And most importantly, is it safe?
What is Fibonacci Retracement?
Fibonacci Retracement is an excellent trading tool that comes in handy while creating trading strategies. This tool might sound complicated, but one can easily understand it. If you remember a few critical numbers, you can quickly create accurate results using this tool.
Most of the time, this robust technical analysis tool is used for identifying the nature of the trading market. It is as helpful as other trading tools, say MACD or Moving Average Indicator.
Market traders trust it because it has a long history of years of mathematical observations. By using this tool, you can identify support and resistance levels. Also, it shows a level of support and resistance, which indicates an upward and downward market trend.
Different Fibonacci Retracement levels
Fibonacci Retracement tool considers the high and low points of the given trading asset to trace horizontal lines. The horizontal lines represent support and resistance level. These levels come from the Fibonacci sequence and are denoted by percentage.
By seeing the given data represented in percentage, you can understand how much the price has retraced. This tool has six common levels, i.e., 23.6%, 38.2%, 50%, 61.8%, 78.6%, and 100%. While 50% is a level, it’s not officially approved. These levels indicate the area on the chart, which shows the price reversal and stall.
You can also use this trading tool for drawing between two price points. Once you have drawn, the indicator will create a level between the two points.
What does it mean? Imagine that an asset’s price has increased by $10. After some time, the price drops by $2.36. After seeing this, you can understand that the asset’s price has retracted by 23.6%.
Correct way of calculating Fibonacci Retracement levels
Traders think that Fibonacci Retracement is complicated because this trading tool does not have any given formula. However, there is a simple way you can calculate the position of two extreme points.
Once the position has been determined, you can then draw a line to join the points. Here, the joining line is known as the trend line since it shows the trend between the determined points.
Imagine a situation where the price of an item is moving from $10 to $15. Take these two points and draw a retracement indicator. Then you need to calculate 23.6% of the item. Use the given formula for doing that.
$15 – ($5 x 0.236) = $13.82
This simple calculation shows that the 23.6% water level will be at the $13.82 price level.
Fibonacci Retracement trading strategy
Fibonacci Retracement can indeed increase your chances of winning a considerable profit. But there are a few key things that you can remember to increase the profit further.
First, while using this trading platform, you must use an accurate time frame, like a daily chart. Also, if you use a strongly trending asset, say gold or EUR/USD, your chances of winning a better payout will increase.
Analyzing prior price movement is also helpful. But how can this be done? That’s easy. Calculate the price fall of an asset from top to bottom. This way, you will know its retracement level. The obtained level shows the asset retracement when it moves in a downward direction after falling.
In the same way, you must calculate the price rise from top to bottom. By doing this, you can identify the retracement level. And then, you can further understand the retracement of price when it moved up after rising.
Here, the traders participating in the upward direction trading use buying patterns, and traders of the downward direction use selling patterns.
How does Fibonacci Retracement help with Binary Options trading?
To use Fibonacci Retracement for binary options trading, you must first draw a percentage line. Once the line is created, you can then move towards predicting the price change. Doing this is essential because the obtained data will be helpful when buying or selling the binary options.
When you are using the Fibonacci Retracement tool for trading, you must remember three things, which are:
- Fibonacci Retracement tool is not the indication of any signal. Instead, it’s the level where the signal in the trading chart will occur.
- Signal occurring at retracement percentage is better than the signal occurring at other levels. So, you must always look out for such signals.
- The target of a retracement level shifts to the following level if the trading chart breaks even once. After shifting the level, if the move is strong, it’s likely to travel in the same direction.
By using the Fibonacci Retracement tool, you can become a professional trader. But while using this trading technique, it’s also essential to take the help of the best broker. Without an excellent broker on your side, you cannot make accurate and quick predictions.
So, choose a legally registered broker, have a low deposit fee, and most importantly, the broker must offer Fibonacci chart patterns. Here are a few trusted brokers.
This excellent trading platform is ruling the binary options trading world with its excellent features. With a minimum deposit amount of $10, IQ Option never fails to amaze traders.
CySEC regulates it, and it also offers access to a demo account where you can practice. The maximum payout offered by this platform is 90%.
Another on the list of best trading brokers is the Quotex. This platform was started a couple of years ago, and it offers a payout amount of 98%. One of the best things about this trading platform is that it requires a $5 deposit amount.
After paying this small amount, you can get access to the demo account. But the issue is this platform is not legally registered with any organization.
Last on this list is the RaceOption that was started in 2014. After getting started, it became popular because it’s a safe way of investing money. But the downside of this trading platform is that it charges around $250.
Is Fibonacci Retracement tool safe?
Since we have discussed several remarkable things about this trading tool, it’s normal to think it’s flawless. But it has got certain limitations that you cannot avoid.
A new trader is likely to use the data and lines shown in the chart to calculate the Fibonacci Retracement result. However, an experienced trader will constantly adjust the lines to find accurate data.
Moving further, the binary options trading market is volatile. This thing makes it difficult for the traders to identify the exact price movement of an asset. If you use the extracted data, which is not accurate, you might lose the trade.
Another limitation of this trading tool is its inability to identify the correct turning point in the asset’s price in the market. The tool gives an estimate, but it’s not accurate, which can make you lose a trade.
Lastly, the fundamentals of this trading indicator are based on numbers and calculations. That means if there is an error in generating the result, the calculated data will be of no use. Since there remains no logic when an inaccurate result is generated, many traders avoid using it.
Fibonacci Retracement is an excellent trading tool that binary options traders worldwide use for generating accurate data. This trending tool helps in identifying the future of the price movement of assets.
But this does not mean that you should entirely depend on this trading tool. This tool can give out false turning points that can make you lose a trade at certain times.
If you want to use the Fibonacci Retracement tool, you should consider the limitations and create a strategy that can make you win a better payout.