The idea to use Fibonacci numbers in the charts is that you are able to find more supports and resistances. It could be very helpful in order to choose the right direction and avoid entering to a wrong trade.
If you want to use the Fibonacci numbers in the charts, you are required to find the top and the bottom of the previous trend. When the previous trend was a downtrend, you draw the Fibonacci levels from top to the bottom and extend the lines trying to make them cover the next completing trend. Analogically, when the previous trend was an uptrend, you draw the Fibonacci levels from the bottom to the top and extend the lines trying to make them cover the next completing trend.
An essential principle is that you must wait for the trend to become completed. You will not be able to draw the Fibonacci levels while the trend is not completed. If you are hindered to find a completed trend in a time frame, you may search for one in the smaller or bigger time frames in the same currency pair or stock.
The key Fibonacci retracement levels that you should follow are the 23.6%, 38.2%, 50.0%, 61.8%, and 76.4%. The ones that appear to be most essential are the 38.2%, 50.0%, and 61.8% levels. These are usually included in the default settings of any Fibonacci retracement software.
The effect that Fibonacci numbers may have on market is considered to be highly significant.
As we mentioned in our previous article, if the Fibonacci numbers are used in connection with the formation of our body, from our genes to our internal and external organs, accordingly they could also be effective in our behavior. Besides, the price of the market moves up and down due to the behavior of the market participants, everyone knows about bulls and bears. According to all that the market must show reactions to the Fibonacci levels.
Expect more articles on this theme.