Fibonacci Retracements Binary Options Strategy

 

This is a price-reversal strategy based on pre-defined retracement levels as you will see below. The Fibonacci method is a pure technical analysis method deriving from the Fibonacci sequence of numbers.

 

Information -What is the Fibonacci sequence of numbers?

Fibonacci was a famous Italian mathematician who lived during the late 12th and early 13th century. Fibonacci spread the Hindu-Arabic numerical system in Europe. The Fibonacci sequence of numbers is a sequence that follows a certain rule, every number equals the sum of the two previous numbers. Here are the first 12 digits of Fibonacci sequence:

1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233

This sequence of numbers is directly linked with the Golden Ratio or Phi or Φ {Φ=1.61803….). This number 1.618 is found everywhere in our universe. It is found between the distances of planets in our solar system, it is found on earth’s nature, it is found in our human body’s anatomy and it is also found on the global financial markets. On this article we are going to focus solely on the Fibonacci Retracements and not on the Golden Ratio’s effect in the financial markets.

 

The Fibonacci Retracements Binary Options Strategy

The Fibonacci Retracements Levels

The Fibonacci Retracements Binary Options Strategy is a pure price reversal trading strategy based on certain price retracement levels. The three (3) Fibonacci Retracements have the following values:

■ 38.2% (not very important level)

■ 50.0% (important level

■ 61.8% (very-important level)

 

 

Designing the Fibonacci Retracements Strategy

 

As it is already mentioned this is a pure technical analysis strategy that can help traders identify potential price reversals.

In order to implement this strategy we need a platform allowing the placement of the Fibonacci Retracements within charts. Almost all trading platforms today incorporate the Fibonacci Retracements tool (Forex, Binary Options and CFD Trading Platforms).

 

Step-1: Applying the Fibonacci Retracements on a Chart

First of all, we spot the price chart of the asset that we are interested-in and select the correct timeframe (selection from a few minutes timeframe to several hour timeframes). After all we have to do is to apply the Fibonacci Retracements tool from the menu on the top of the platform. Applying the Fibonacci Retracements tool is an easy process, we just need to place two points in the chart:

Locating the Minimum and Maximum Points of the Swing:

■ Point-A is the starting of the swing (Point-A in the following chart)

■ Point-B is the local high of the swing (Point-B in the following chart)

That is all, if you place these two simple points the retracement levels will be uncovered automatically.

At a glance now you can indicate the three Retracement Levels of any chart:

■ 38.2% | 50.0% | 61.8%

In the following chart you can see that this EURUSD market has reacted on the Fibonacci Levels 50.0%. This is a common phenomenon when you are trading Forex assets. Reversals are commonly found in 50.0% or 61.8% retracement levels.

 

Step-2: Trading the Results of the Fibonacci Retracements via Binary Options

After applying the Fibonacci Retracements tool in the right chart we can trade the results of the Retracements in both directions (Call / Put). It is important to identify correctly the swing and place the two points (A,B) in the right levels.

Trading the Upward and Downward Reference using Call and Put

■ If the price in the chart is found in the downward reference swing then we are simply purchasing a Put Option (Sell the Market).

■ If the price in the chart is found in the upward reference of the retracement we are simply purchasing a Call Option (Buy the Market).

We may use several expiries to trade via the Fibonacci Retracements from 1-minute to several hours. The right expiry is in correlation with the magnitude of the retracement. Wide price retracements should be traded in large timeframes and tight price retracements should be traded in small timeframes.

 

Conclusions regarding the use of the Fibonacci Retracements Strategy

(1) You can use the Fibonacci Retracements to trade any market (Forex, Stocks, Indices, Commodities) in any timeframe.

(2) It is important that you place the two points of the swing correctly and with accuracy.

(3) This is a very popular and successful strategy but keep in mind that no strategy can be 100% profitable. There is always the risk that the market will move the opposite direction than you expect. Therefore do not place more than 5-10% of your balance in any trade.

(4) It is recommended that you test this strategy on a demo account before trading for real money.

(5) You can use an additional technical analysis tool for confirmation of the signals generated by the Fibonacci Retracements.

(6) When the signal is confirmed you must execute your trade with high speed.

(7) The Fibonacci Levels of 50.0% and especially the 61.8% are the real important retracement levels.

(8) When you are trading using this strategy make sure that you will avoid major macroeconomic news disclosure. You can know that by using an online economic calendar.

 

Fibonacci Retracements Binary Options Strategy

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