Most likely, as you have seen repeatedly before, it is difficult to distinguish trend waves from retracement waves due to the strong volatility of the Forex market.
To correct this problem, a free Fibonacci retracement indicator has been developed. You can check it out in this article.
Description 2. Fibonacci levels description
3. How to use the indicator
1. Fibonacci retracement indicator description
This indicator automatically plots Fibonacci levels (Fibonacci extensions) on the MT4 chart. In doing so, it filters out “flat market” phases and considers only those phases where prices are active.
Fibonacci extensions help determine the depth of possible retracements (pullbacks) associated with major trends. By using these levels, you can identify those pivot points (or fulcrums) from which the primary trend is more likely to recover.
2. Description of Fibonacci levels
The Fibonacci expansion is displayed as a percentage and is calculated as follows: Set the Fibonacci grid (displayed as values from 0% to 100%) to display percentage values of 23.6, 38.2, 50.0 and 61.8. The resulting values are used to plot the Fibonacci levels (numbered 6).
100% – the starting point of the Fibonacci level placement.
61.8% – the so-called “golden ratio”. This level is a good complement to the 50% value. Therefore, if the retracement wave slows down around these two levels, the pivot point is more likely to occur.
50% – Pivot points are usually formed around this level. This is because short-term traders lock in profits on their positions after trading pullbacks.
38.2% – Pivots form close to this level when traders are highly active and confident.
23.6% – pivot points rarely form around this level. Forex market participants usually wait for deeper retracements to determine entry points.
0% – this value is the end of the Fibonacci level placement.
When using Fibonacci levels in other indicators, you can see the 78.6% level. Usually, retracement waves do not reach this value. This is due to the fact that the trend movement resumes earlier, i.e. closer to the higher level. This is why the 78.6% extension level was removed from the FiboRetrament indicator.
In addition to the theoretical description of the level, you should also consider each specific situation on the chart. So, if there was already a strong move before the retracement and the retracement wave was weak, there is a better chance of a recovery move.
Conversely, if the retracement is stronger than the main trend, the retracement may turn into a new opposite trend.
In addition, if the Fibonacci levels are consistent with integer levels (see the free RoundLevels indicator) or other technical analysis tools, the chances of resuming the primary trend will be higher.
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