Forex traders have to use many different methods to make the correct entry decision. One of the popular ways to help traders accurately identify support/resistance levels and then provide potential price movements is to use Fibonacci. The following article will introduce you to the Fibonacci tool and how to effectively use Fibonacci levels in forex trading.
What is a Fibonacci level?
Fibonacci is a series of proportional numbers discovered by an Italian mathematician.
This Fibonacci sequence describes the natural proportions of all things in the universe.
The ratios are derived from the following sequence of numbers: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…
This sequence of numbers is derived starting with 0 followed by 1 and then adding 0 + 1 to get 1, the third number. Then add the second and third number (1 + 1) to get 2.1 + 2 to get 3.2 + 3 to get 5 …
In particular, ignoring the first numbers of the sequence, the ratio between the two numbers next to each other is always 0.618 (Ex: 21/34, 34/55, 55/89…), and the ratio between the first 2 numbers and the last of a sequence of 3 consecutive numbers will be 0.382 (Example: 13/34, 21/55, 34/89…)
These are considered the golden ratio, which occurs very commonly in nature. In particular, this ratio applied in the technical analysis of financial markets is prevalent and suitable for all different time frames.
How to Draw Fibonacci in MT4
First, we will go to Menu Insert -> Fibonacci -> Fibonacci Retracement as shown:
Draw a Fibonacci retracement in an upward trend: identify Swing High and Swing Low. Set the start of Fibonacci retracement to Swing Low and drag to Swing High.
Draw a Fibonacci retracement in an upward trend
Draw a fibonacci retracement in a downward trend: identify Swing High and Swing Low. Set the start of Fibonacci retracement to Swing High and drag to Swing Low.
Draw a Fibonacci retracement in a downward trend
Set parameters and display prices for Fibonacci
To view the Fibonacci parameter table, right-click the Fibonacci row, and then select Fibonacci Properties:
A Table of Fibonacci parameters will appear with four tabs: Common, Fibo Levels, Parameters, Display
Fibonacci Common Properties
The elements of the Common Tab Common parameter are as follows:
Part Name: Can be set or not. It is an identifier of which fibonacci area he is drawing.
Description: Not required.
Style part: The Fibo diagonal connects Swing Low to Swing High. Here you choose dark orange. The second frame in the style is that you will decide whether it is a solid line or a dotted line…. The last frame is the dark and light layer of this Fibo line.
Fibo Levels and Show Specific Prices for Fibonacci Levels
In this tab, there are a few key points to note:
Level: Fibo Levels
Description: Displays descriptions, layer names off the chart, etc.
Add: Add fibonacci level
Delete: Deletes an existing Fibo layer
Default values: Resets the default values.
Style: displays horizontal lines proportional to Fibo layers, color, line type (solid or broken) and line size (thick, thin…)
The Fibonacci drawing tool in MetaTrader 4 does not display the price level.
To add the Fibo level price display, you need to add %$ immediately after the description in Fibo Levels as shown below:
Show prices for Fibonacci levels in MetaTrader
Ok. Now you have seen the specific costs for Fibonacci levels.
Fibonacci parameters are parameters of Swing High – Swing Low points displayed with specific numbers and the date and time of reaching those Swing High – Swing Low.
If you like round numbers, you can also change them here. For example: change Swing High to 147.80 and Swing Low to 146.30, for example, to get excellent numbers
2.4. Fibonacci visualization
This area allows you to choose whether to display the Fibonacci Retracement that you are drawing WHEN TRANSFERRING TO ANOTHER TIME FRAME is displayed or not.
Usually, when drawing a Fibonacci retracement to D1 and then switching to M1, it enlarges to a large size and does not enter any level, so if you pull to D1, it should only appear at H4 or most H1.
In that case, deselect Show on all time intervals, and then select D1, H4, H1
After completing the settings, you need to click OK which will be updated to the current chart. And these settings can be saved at the next Fibonacci retracement drawing.
Above are all the detailed instructions on how to set the parameters for Fibonacci retracement in MetaTrader 4 and how to display specific prices on Fibonacci levels.