My favorite Fibonacci level is eighty eight.6% and it's one thing I actually have written regarding on DailyForex repeatedly before. To recap, the 88.6% level comes from taking the Fibonacci Golden magnitude relation, 61.8% (or 0.618), sq. ontogenesis it then sq. ontogenesis it once more. this provides you zero.886 or 88.6%.
When the value retraces to a Fibonacci level, all which means is that the dimensions of the retracement as a share is capable a Fibonacci share. for instance, if the value makes an occasional, then moves one hundred pips up to create a high, then moves backpedal eighty eight.6 pips before moving keep a copy within the original direction, then it's retraced eighty eight.6%.
When I am victimisation different Fib retracements levels, such as 61.8% or 38.2%, I usually need to examine a confluence of different factors like a chart pattern, previous support/resistance etc. however with the eighty eight.6% level, if I see value bounce cleanly off it and move away, I will usually take a trade on it alone particularly if it's in line with the larger trend. I actually have found it to be a awfully correct predictor of value movement.
Yesterday morning (Tuesday seven February), I saw a pleasant clean eighty eight.6% retracement on the 1-minute EURUSD chart:
The price created an occasional then went up to create a high between the 2 points marked with AN “X”; it then retraced down eighty eight.6% and bounced off it inside a pip. (You may even have seen this on a 5-minute chart.)
Notice that once the bounce, not solely did the value move to the first high, however it continued moving up for the remainder of the day and didn’t recollect – over a hundred and fifty pips from the first eighty eight.6 level.
It is value saying that the value at the eighty eight.6% level, 1.3097, was conjointly a previous space of support & resistance, additional verificatory AN entry. within the following 5-minute chart I’ve marked one.3097 with a line and looking out back on the chart you'll be able to see previous support/resistance that I’ve highlighted with gray boxes:
The previous support/resistance confluence is especially helpful as a result of the previous trend on the 1-minute & 5-minute was down, therefore taking an extended trade was against that short-run trend.
As the day flat, the uptrend paused and developed into a spread that lasted for regarding thirty five minutes. throughout that vary, another 88.6% retracement occurred that bestowed opportunities to shop for into this uptrend and/or increase previous long positions.
The other advantage AN eighty eight.6% bounce has over sixty one.8%, is that the value has additional to travel the previous high (in this case for an extended trade), thus supplying you with a much better risk/reward magnitude relation for your trade.
Typically, I place stops just under the eighty eight.6 level or the one hundred.0 level. raise yourself initial, what's the risk/reward magnitude relation on the trade? If your minimum target of reaching the start of the retracement, i.e. the Zero Level on the Fib lines, can not be reached with a good risk/reward, then pass away the trade.
The higher than examples ar for long trades. They work precisely the same in reverse with short trades. In those cases, the 100.0 Fib level is at the previous high, and also the Zero Level at an occasional, and you’re trying to find the value to maneuver up to the eighty eight.6% and bounce down.
Simplify your Fib retracement lines to sixty one.8% and 88.6% (or even simply eighty eight.6%) and begin trying to find these bounces...
In summary
1. The 88.6% Fib retracement level is one in all the a lot of powerful Fibonacci levels once it produces a bounce; you'll be able to think about a trade simply on it level or with previous support/resistance (the best trades ar usually in line with the larger trend).
2. The 88.6% level provides smart risk/reward magnitude relation trades once caught early. continually think about risk/reward for each trade.
3. Bounces off eighty eight.6% retracements usually travel a lot of additional than simply the previous retracement permitting you to path a number of your position.
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