Once upon a time there is an Italian mathematician named Leonardo Fibonacci. He discovered the number series of: 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, …which is also found in the nature. From the series of numbers came up a famous ratio called “golden ratio” which is showed if we divide two numbers in a row. We receive the current arithmetical system also from this calculation.
From this interesting natural ratio, people try to apply the same ratio to the forex trading. The Fibonacci theory came from the name of this genius mathematician. Whoops! Don’t panic. As a PAMM trader, you won’t have to do all the calculation work in your trades. Actually, there are a charting software and a Fibonacci calculator which can do all the calculation work for you.
Well, there are many different Fibonacci studies but the two most popular ones are Retracement and Extension. Now we’ll talk about these two, okay?
Fibonacci Retracement levels are usually known as potential support and resistance areas. The basic point of the Fibonacci Retracement levels is finding the buy/sell signals when the price touches these points. The idea is buy when the market is trending up and sell if the market is trending down. Fibonacci Retracement levels are: 0.236, 0.382, 0.500, 0.618, 0.764. In the other side, the Fibonacci Extension levels are usually used as profit taking levels. Fibonacci Extension levels are: 0, 0.382, 0.618, 1.000, 1.382, 1.618. The good news for you is that most charting software includes both levels.
If you want to use Fibonacci as your technical indicator, you will have to pay attention on these points:
- This indicator will work best in the trending market, either in the uptrend or in the downtrend.
- You need to identify Swing High and Swing Low points.
A Swing High Point is a candlestick which has at least two lower highs on both the right and left of itself. While a Swing Low is a candlestick which has at least two higher lows on both left and right of itself.
The art of using Fibonacci as a technical indicator is how to determine the correct Swing High and Swing Low which can lead us to the correct support and resistance point. As a PAMM trader, you have to always be alert and think smart before take any actions: buying or selling. Even though Fibonacci is a great indicator you can use, please remember that it’s not as simple as it looks! You must be very smart and well prepared in reading the market. After many trials and error, you must be very clever to do a great trading.
Happy trading in PAMM Investments !
Don’t forget to read this important article for PAMM trader
1. How to become a PAMM Trader
2. Understanding your Forex Trader Level as PAMM Trader