Fibonacci in trading refers to the use of Fibonacci retracement levels, a popular technical analysis tool that helps traders identify potential key levels in the market. The concept is based on the Fibonacci sequence, a mathematical series where each number is the sum of the two preceding ones (e.g., 0, 1, 1, 2, 3, 5, 8, etc.). The key Fibonacci levels commonly used in trading are 23.6%, 38.2%, 50%, 61.8%, and 100%.
These levels are derived from the ratios between numbers in the Fibonacci sequence and are applied to price charts by marking significant high and low points. Traders use these levels to predict possible price reversals or continuations. For example, after a price move, if the price retraces to a 61.8% Fibonacci level and holds, it may indicate a potential reversal back in the direction of the initial trend.
Fibonacci retracement is a versatile tool, used in various markets, including forex, stocks, and commodities, providing traders with a framework to anticipate market movements and make informed decisions.
Fibonacci Levels to Focus On
As a smart money trader, we utilize Fibonacci levels not just as simple retracement indicators, but as critical tools for determining equilibrium levels, especially when assessing external and internal range liquidity. This becomes particularly important when selecting which fair value gap to trade based on the type of setup.
For long positions, our focus is on fair value gaps that lie below the equilibrium, which corresponds to the 50% Fibonacci level. Conversely, for short positions, we concentrate on fair value gaps above this equilibrium.
When aiming for optimal trade entries, we pay close attention to premium levels, specifically the 70.5%-79% range of the Fibonacci level. These levels provide a refined entry point that aligns with high-probability trade setups.
Understanding and mastering these concepts is crucial for GhostTraders’ students and those aspiring to join our community. Make sure you comprehend these principles thoroughly, as they form the backbone of our strategic approach to trading.
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