As a binary options trader, you should be able to predict the price movement of your underlying asset to succeed in your trade. As an experienced trader, you might be using various technical analysis tools to increase your chances of success in each trade. Fibonacci retracement is considered as an effective tool in making trade decisions while investing in binary options. Several veteran traders have become highly successful by using this tool and they assure that it works up to 70% of the time. Fibonacci helps to identify price reversals and retracements by indicating the potential support and resistance levels. By applying Fibonacci retracement along with Elliot wave theory, you will be able to forecast future price movements of your underlying assets more accurately.
Fibonacci retracement is a commonly used term in technical analysis which indicates the areas of resistance (level beyond which market price does not increase) and supports (level beyond which market prices stops going lower). It makes use of horizontal lines to highlight the areas of support or resistance at major Fibonacci levels before the market trend of the asset follows its original direction. The key Fibonacci ratios which are used to create these levels are 100%, 61.8%, 50%, 38.2% and 23.6%. Fibonacci with 80% retracement is commonly used by binary options traders to make effective trading decisions. You should follow certain rules while applying the Fibonacci retracement techniques for any trade since the improper application of such technical analysis tools can lead to catastrophic results.
Conventional traders believed Fibonacci’s 61.8% retracement as the golden ratio, but since other ratios have shown better results with binary options, the preferences have changed among the traders recently. You can use the Fibonacci method along with Elliot wave theory to identify the retracement level for a particular wave. It is a commonly known fact that the market price of an asset has a tendency to retrace for the second wave within the 50%-61.8% level when compared with the previous wave. You can use the Fibonacci retracement tool to measure the Elliot wave and if you notice the previous trend to be bullish, then you should go for a “call” option for the 50% to 61.8% level. If there is a reversal pattern found in the same area, then it is meant to confirm the retracement level.
Fibonacci retracement can be very easy to understand if you are familiar with any support and resistance strategy. The key Fibonacci levels 23.6%, 38.2%, 50%, 61.8% & 100% are considered as predefined resistance or support levels where we could expect market prices to bounce, breakthrough, retrace or pause. We expect the assets prices to experience some form of reaction at these key Fibonacci levels. These retracement levels are also considered the best possible targets for the Touch component of the Touch/No Touch binary options contract.
When using Fibonacci retracement in binary options, we can choose a “Call” option during an upward retracement if we speculate that price will bounce off from the support level and move forward in the upward trend. Similarly, we should go for a “Put” option when there is a downward retracement. This is when the asset price reaches one of the key resistance levels after which we can expect a downward trend. You should wait for the trend line to be broken to the downside if it is a rising trend and choose a “Put” option. Similarly, you can find out the resistance level using Fibonacci retracement when the price trend will bounce back and place a “Call” option accordingly.
Experienced Binary options traders believe that Fibonacci ratios can be a great way to predict market trends and gain profits with limited predefined risks. Along with other binary options strategies like hedging, fundamental analysis, trend trading strategy, risk-reversal strategy, straddle strategy, swing trading strategy, news trading strategy etc. you should also master the Fibonacci retracement technique to improve your winning ratio as a binary options trader. Fibonacci levels can be a great way to find the best possible retracement levels which can help you choose the “Put” and “Call” option when placing your trade. Fibonacci levels can also indicate the price targets accurately with their swing highs and lows. Understanding and applying technical analysis tools is very important to become a successful binary options trader. Fibonacci retracement is definitely an effective technical analysis tool to accurately predict the market trends.
As with any binary options trading strategy, it is recommended to test the Fibonacci retracement technique multiple times on a demo account so that you can gain some experience without risking any real money. Once you are comfortable with the technique and have gained confidence that you can increase your success ratio using this technique, you can apply that on your live trading account. Overall, Fibonacci retracement is a powerful tool for any binary options trader that can be used on almost any time frame. If you use it with patience and discipline, you might be really surprised with the astonishing results it can produce.