In our previous articles about Fibonacci trading, we discussed the basic principle and idea of this system of numbers and the way you can apply it in real Forex and stocks trading.
Here is a little more specific information that you should know about Fibonacci trading.
What is the best time to use the Fibonacci levels?
The best time frames for the Fibonacci levels depend on your trading system. Actually, you are able to use the Fibonacci levels in all time frames. When you use them in the bigger time frames, for example daily, the result would work for the next several days, weeks and even months. Analogically, if you use them in smaller time frames, for example 5 minutes, the result could work only for few hours, because the price is going to leave the Fibonacci level area very soon.
So, you have already put the Fibonacci Levels on your chart. What is coming next?
As we have already mentioned, in this type of trading, the Fibonacci levels act as support and resistance levels and take the right positions based on them.
Thus, when the price is moving up and you have already entered to a long position, in other words you have bought, you have to be cautious when the price goes near to one of the Fibonacci levels. There is a chance to go down and thus you are going to lose the profit you had already made. So you are required to move your stop loss to the open price of the first candlestick that is touching the Fibonacci level or a little higher. This depends on the length of the candlestick.
To put it shortly, if you have made enough profit, you could close your trade and expect for the price to break the Fibonacci levels or fail and move down. You are able to take a new position then.
It is analogically when the price is moving down, however, here the Fibonacci levels act as resistance.
You should remember that when one of the Fibonacci levels is broken, the price oftentimes returns to retest. If you are prepared for all these variants, you will be prevent from failure.
You have to think about the Fibonacci levels as they are real supports and resistances. There is no difference, moreover in times they could act even stronger.