How can fibonacci retracement help with binary option trading
You might know that market creates trends and it never goes in a straight line. And as for the trends, they keep on taking zigzag routes while building higher highs alongside higher lows during uptrend and the opposite in downtrends.
Precisely, the market is in continuous movement, fluctuating between high and low. And the movement against the usual trend is known as the correction retracement.
Since the swing traders try every possible ways to benefit from the single movement, regardless of the high or low, they have to be capable of predicting the future movement of the retracement. This will help them to determine whether the touch option will be a good investment in the present environment or not or should they still consider investing in the retracement or wait till the trend returns to the main direction.
To go by the past, the correction is likely to move one third, or say half the distance of the existing movement. In here, every number is the total of two preceding number. For example, 0, 1, 2, 3, 5, 8, 13, so on and so forth. When trying to build an automated system for trading, you should make a decision on the values to be used.
Essentially, you need to understand that correction in a trend never ends at a particular percentage value. Instead, this ends at a point near a percentage value. Being a regular binary option trader one should not let the discussion on various percentage values confuse oneself. They occur all the time and a trader needs to know how to use retracements to his advantage. This is what the Fibonacci retracement tool does for you.
The tool plots five horizontal lines on the charts which correspond to 5 possible areas to which prices may retrace, with the distances expressed in terms of percentage of the original move:. Prices can retrace to any of these points. So how would you use the retracement tool to trade binary options?
I would therefore choose the Daily chart. Note that by selecting this chart, I have already fulfilled my first two trade conditions. It is a daily chart, showing me when a retracement is actually occurring, and the EURUSD trends well, being the most actively traded currency pair in the market. I am now looking for how to fulfil my third condition, which is actually my trade objective. I want to pick a strike price at a point along the course of the price retracement, between the market price and the To do this successfully, I must be sure that a retracement is actually in progress.
How do I confirm this? The bullish momentum of the EURUSD has actually been checkmated by the formation of a reversal candlestick pattern, a bearish harami. An expanded version of that point is shown below:.
Occurring at the peak of a bullish momentum is a clear reversal signal. Trading binary options is not rocket science.