What is Fibonacci Trading – The Binary Logic

Fibonacci trading is a system whereby numbers are used to predict turning points. First, there is a way one should recognize price behaviour in Fibonacci trading, especially the direction it can move. Basically, there should be s strong trend in Fibonacci trading, if it is not there, the price movement will be sideways. If there is no clear direction that price can move, it will be hard for a trader to make good money. Check the figure below:

 

Fibonacci Trading - The Binary Logic (1)

 

How to recognize a trend:

One should be able to notice if there i a trend in a place or not. First, you should check on higher highs and higher lows, in case you are checking for uptrend. The chart below shows the behaviour an uptrend. You can easily know high is higher than the previous one and how higher the lows are the previous.

Fibonacci Trading - The Binary Logic (2)

However in a downtrend, it is the opposite of the uptrend, you should check for lower lows and higher highs. Each higher is lower than the previous one and each lower is lower than the previous one. Check the figure below:

Fibonacci Trading - The Binary Logic (3)

Tools used to Trade with Fibonacci Trading:

Fibonacci Retracement:

This is the most common tool that many traders have adopted while using Fibonacci trading. Its main importance of that one can easily trace where a correction might take place or stop. From where the trend has stopped, one can easily learn how to move in the direction of the major trend.

Fibonacci Trading - The Binary Logic (4)

 

Fibonacci Arc:

In this tool, the support and resistance are shown but in a different way. You can draw Fibonacci arch either from low to high or high to low, thus, you can notice three curves 38.2%,50% and 61.8% which represents where prices can possibly change by either reversing or stop.

Fibonacci Trading - The Binary Logic (5)

 

Fibonacci Expansion:

In this tool one can also predict where there will be the next low or high. To do this one must have three points A and B from point and point C where the correction ends. With the help of these points, one is able to easily draw Fibonacci expansion. Basically, there are many levels but the major ones are 61.8%, 100% and 161.8%.

Fibonacci Trading - The Binary Logic (6)

 

Fibonacci time zone:

Fibonacci time zone is drawn horizontally but their several ways it can be drawn from either high to low or low to high. As a result, there are vertical lines which indicate an end of a movement or a change of direction .

Fibonacci Trading - The Binary Logic (7)

However, there are important things that one must consider, first, one should have a trading plan. A trading plan will guide you to know which type of a tool can easily gain you money. Another aspect is money management. The losses you gain should be minimal compared to the profits as this will help you avoid any risks which might occur. Last but not least are the signals. This will guide you when you want to enter or leave any position.

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