To apply Fibos correctly, you should...

To apply Fibos correctly, you should...

Fibonacci retracement is a very handy tool that potentially can bring lots of money. If you raised bumps trading with Fibo it doesn’t mean that it is not working. In fact, it’s appreciated by many high-profile traders that use it to identify key support and resistance lines on a day-to-day basis. So, we decided to revise some common mistakes that traders make applying Fibos so as you don’t give up on this effective trading tool.

1. Don’t mix your reference points

Fibonacci retracement should be applied on a wick-to-wick, body-to-body basis. For example, if you start applying your Fibo channels with the lowest point of the candle (the tip of the candle’s wick) you should reference it with the highest point of the candle located at the end of an uptrend. If you start plotting channels from the lower edge of the body of the candle you should reference it with the upper edge of the body of the candle which is located at the end of the upward trend.

2. Pay attention to the long-term trends

Many traders measure significant moves and pullbacks in the short-term ignoring the bigger picture of the currency pair movement. The “narrow picture” approach is a bit misguided. By keeping tabs on the long-term trend, the trader is able to apply Fibonacci retracements more properly and set themselves for bigger profits, not just small gains.

3. Don’t count on Fibonacci alone.

Fibos indicate reliable trade setups, but it’s better to double check before rushing in the trade. So, we suggest applying some other technical tools like MACD or stochastic oscillator to increase the likelihood of a profitable trade.

4. Avoid using Fibos over short intervals.

It is highly recommendable to apply Fibonacci retracements on long-term timeframe. The retracement levels on the shorter timeframe are less reliable because of high volatility that can sweep away your support and resistance levels in a matter of time.

I hope with these prompts you become better in the application of Fibonacci retracement tool. 

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