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Fibonacci ratios in financial markets Part II

29-01-2018 | No Views : 46

Fibonacci ratios in financial markets Part II

In the first part of the Fibonacci ratios in financial markets, we discussed the importance of these ratios and their presence in nature. We also discussed the main ratios used in financial markets, with examples.
In this section, we will address the secondary ratios with the explanation of the Fibonacci tools available on the MetaTrader platform. We will also explain the importance of this effective tool in confirming the entry when combined with other technical analysis tools, thus increasing the expected price movement.

Secondary Fibonacci ratios used in financial markets

We will address the most important secondary ratios used in the technical analysis of financial markets, which have the use of the extraction of harmonic trading models as well, and secondary Fibonacci ratios are divided into peak levels and static levels.

Corrective level 0.382

The corrective level of 0.382 represents the first possible reversal area in the new direction, as the price is above the 0.618 Fibonacci level, raising the possibility of price action continuing in the new direction.
The failure of the price to exceed the 0.382 Fibonacci, is a sign of the possibility of failure of the new trend to continue and the return of the price to the previous direction.

Example of corrective level 0.382

The pair touched the 0.382 correction level but failed to breach it, causing the pair to fall again and continue the downside move, as shown on the attached chart.
Fibonacci ratios 0.382

Peak levels

  • 2.24
  • 2.618
  • 3.14
These ratios are called peak numbers because they come after the 1.618 level, and indicate that the price is moving quickly, and the price contact of these levels may lead to sudden reversal.

Example of corrective level 2.24

EUR/USD rebounded higher after touching the corrective Fibonacci level of 224, as shown on the chart in the accompanying picture. We note that despite the obvious bearishness, the price reversed after the first correction on the corrective level 2.24.
Level 2.24

Example of price reversal from corrective level 3.618

In this example, we see that the corrective level 3.618 caused the price to hold steady for a period before falling back sharply, as shown on the EUR / USD chart in the attached picture.
Level 3.618

Fibonacci ratios in the financial markets

  • 0.5
  • 1.0
  • 2.0
These ratios are called secondary figures, because they are not derived from a Fibonacci sequence. An example of this is level 0.5, which is widely used by technical analysts because of the belief that the price is always corrected by 50%. This level is in the middle of the previous wave, Fibonacci, thus representing 50% of the previous wave.

An example of a 0.5 correction level

In the clear example, we see that the price has risen to reach the middle of the downside wave, to be present at the corrective level 0.5, as shown on the chart in the accompanying picture.
Level 0.5

Fibonacci types on MetaTrader trading platform

  1. Fibonacci Expansionary Retracement
  2. Fibonacci expansions
  3. Time zones
  4. Arcs
Dear reader, we discussed in the Fibonacci extension of the Retracement, but the other types will be dealt with in an independent lesson, as it is more complex as the Fibonacci tool Time Zone is used with Elliot waves and this makes it more complex.

An example of a price reversal from 2.24 with the Ras and shoulders price model

In the example, it is safe to note that the price fell to close to the 2.24 Fibonacci level and started to form the head and shoulders price pattern. This was a very important signal for the price reversal. This happened as the price climbed to breach the neckline of the pattern, The target level is 1.618.
So we have finished studying the Fibonacci ratios in the financial markets, which will help you identify important support and resistance levels.

Fibonacci ratios in financial markets
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