What is a Fibonacci Retracement?
There are a few key things to know with regards to Fibonacci retracements. The first step is to create a trend line on two extreme points in the price chart of the asset. Then, horizontal lines are drawn on the price chart at a few key Fibonacci levels:
How do they work?
Retracements are a popular tool within the world of investing and trading. The theory behind this is that prices oscillate—they go up and down—and when patterns begin to repeat themselves, there is a lot of information to gain from this. With Fibonacci retracements, you can get a better idea of how to adapt your trading strategy.
Why these lines work is not entirely clear. Some people think that they are a self fulfilling prophecy. This answer relies on market psychology — Fibonacci retracements work because people believe that they work and then act accordingly. You can learn more about fibonacci number and Leonardo of Pisa who the formula was named after.
Binary options and Fibonacci retracements
Binary options are a great place to use the Fibonacci retracement because they are such an accurate indicator as far as determining where price levels are headed in the short term. Fibonacci retracements occur at all levels of trading, from minute by minute charts, to weekly and monthly. Price oscillation occurs at all of these levels and as a result, Fibonacci retracements are a sound strategy.
These might seem intimidating at first, but most charting packages will allow you to create Fibonacci retirement lines and superimpose them on price charts. These programs will also automatically create the key points of interest at the appropriate levels. There is nothing to be afraid of with these charts. After a few days of using them, you will become much more comfortable at reading them. This can do nothing but good for your trading. With a mastery over Fibonacci retracements, you will be well upon your way of mastering binary options trading.