One of the first things that you will observe when you begin trading is that an asset’s price oscillates. This is a fancy word that means it moves up and down in cycles. It’s one of the most primary laws of any market, and it’s one that beginners use to their advantage. When an asset has a price that’s way down, the most likely move for it is to go up. The strategy that we are going to share with you today involves this concept, but predicts it with a much higher degree of accuracy than simple observation can ever attain on its own.
This strategy includes the use of Fibonacci retracements. If you’ve never heard of this strategy, it is named after an Italian mathematician, Leonardo Fibonacci, and the pattern of numbers that he is famous for creating. Each number in the sequence is the sum of the two numbers prior to it. After years of experimenting, traders have found that there a few numbers that hold more importance than others when it comes to identifying trends within an asset’s price movement.
Before we get into all of that, though, we need to look at a price chart that’s appropriate for the timeframe that you will be trading. If you are looking at five minute expiries, then ensure that your chart is a five minute chart. Look at the chart and identify a trend. Now, look and see a retracement point in the past, where prices have tended to reverse their course. This can be used in either an upward or a downward motion. The type of trade that you execute (call or put option) will need to reflect which direction the asset is about to move in.
Back to the Fibonacci numbers. You will need to create a line on your price chart beginning at the low point in an uptrend and ending at the high point. For a downtrend, you begin at the high point and move in the direction of the low point, following the trend. The trade point will be at the 61.8 percent Fibonacci retracement level.
To make this work, you will need to have top of the line charting technology. Your charts need to be able to move in real time, and they need to allow you to edit them with a Fibonacci retracement tool. It also needs to be able to identify what the retracement levels are so that you can have the highest degree of accuracy possible.
Once the retracement line has been created, you can use the data throughout the next several cycles of the oscillation. Once the data becomes out of date, new retracement levels need to be created. The good news is that it works on any timeframe as long as you adjust the expiry of your binary options. A 60 second binary option approach should reflect minute by minute changes. A four hour long approach should do the same, and so on.
There is no guarantee that this strategy will work every single time. This is why familiarity is important. Technical indicators are strong, but some are better than others and it’s important that you know enough about your asset so that you can see which works better than the others. It’s also important that you be aware of any sort of fundamental analysis or news item that could throw the technical indicators off track as far as their accuracy goes. This strategy will be at its most effective in a neutral market when all of the other outside influences remain unchanged.
Another drawback is that this strategy is surprisingly simple. If you are an experienced trader that knows what they are doing, this is good because it eliminates the chances of error on your part. However, newer traders might find that they understand the method completely and jump in without the proper ability to keep themselves safe before and during the life of the trade. Simplicity is good, but it can breed overconfidence, which is dangerous.
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