Using the Fibonacci retracement tools is one of the easiest ways to catch large market movements. Everyone knows a trend trading strategy is the best way to make money in the Forex market. But how do you trade the major trend? Though there are many techniques, the pro traders in Signore prefer to use the Fibonacci retracement tools. The retracement tools allow you to find the endpoint of the bullish or bearish retracement. So, if you manage to learn its use properly you can easily execute a trade in favor of the long term market trend. Let’s learn the use of Fibonacci retracement tools in a few easy steps.
Table of Contents
Select the daily time frame
If you intend to trade the market using the Fibonacci retracement tools, you must select the daily time frame. Finding the retracement level in the hourly time frame is not that profitable. You might end up by trading the market against the major trend. But if you stick to the daily or weekly time frame, you can easily use the key swings of the market to draw the retracement level. Some of you might think you will have to do extensive math to find the key retracement levels. But in reality, it’s way simpler. Just use the most recent swing low and high to find the bullish retracement level. The smart trading platform will do all the math and show you the key retracement level of the market.
Look for price action signal
The new traders often execute trades without having any price action confirmation signal. But the pro traders prefer to use the price action signal to trade the 38.2%, 50% and 61.8% retracement level. As Fibonacci retracement trader, try to use the Saxo options trading account since they always offer precise price feed. Unless you have access to a robust trading platform you will never get the very best trade setups. The price movement will have latency which means you never get real-time price feed. Some of you might not consider this as an important issue, but every single step counts in the trading business. Most importantly, the formation of the Japanese candlestick pattern greatly varies when you trade the market with a low-end broker.
Analyzing the fundamental factors
Never think you can become successful at Forex trading profession based on technical analysis. You have to understand the role of major news or else it won’t take much time to blow up the account. The long term trend often gets changed due to high impact news. So, if you want to establish yourself as a professional trader, make sure you learn about interest rate change, unemployment claim and other important variables of the market. Things might seem a bit hard but with proper devotion, you can easily master the art of fundamental analysis. Blend your technical and fundamental data to get the very best trades.
Embracing the losing trades
Though Fibonacci trading strategy is based on trend trading technique, still you have to lose trades. On the event of high impact news, the long term market trend often gets changed. This is where you will have to face losing trades. But is there any way to avoid such losing orders? The straightforward answer is yes. You have to analyze the sentiment of the market which will keep you on the sidelines even after getting the best quality trade setups. Never try to force yourself to the edge to become successful at trading. Stick to the basic rules of investment and trade the market with proper logic. At times, improvise your trading plan since it will help you to protect your trading capital. Though this system is extremely profitable, you should never risk more than 2% of your account balance. Be a conservative trader to protect your trading capital.