This will blow your mind.
Did you know that somehow, in some way, everything in this world is connected to the Golden Ratio as in the Fibonacci sequence?
I mean, did you know the Golden Ratio can be found in the weirdest of places.
Take your body for instance; the leg length is relative to arm span relative to height.
All are related in a manner that can be seen everywhere over and over again.
Why am I telling you this?
I want to show you how to trade on IQ Option using the Fibonacci sequence. First, for you to understand this, we have to do some introductions.
What is the Fibonacci sequence?
Fibonacci sequence is a series of numbers developed by adding the sum of the previous two numbers, which in turn, create the next numbers in the sequence.
Example – it is true that: –
2+3 = 5
…the same addition continues to infinity.
Now, the beginning of the Fibonacci sequence is 1, 2, 3, 5, 8, 13, 21…
This sequence was invented by an Italian mathematician Leonardo Fibonacci back in the 13th century.
Well, the sequence is not as important as the underlying mathematical links expressed as ratios between the numbers in the Fibonacci sequence.
And this is what traders use to trade as we will see in a minute.
But first, let’s see how the ratios are drawn.
Since you already know that the numbers in the sequence are calculated by adding the sum of the two previous, let’s understand one more thing.
In a rather remarkable way, each number on the sequence is approximately 1.618 times greater than the previous number in the sequence.
Looking at it, 1.618 is the Golden Ratio we were talking about earlier, right?
This common relationship between the members of the Fibonacci sequence is what led to the development of ratios used in a Fibonacci retracement.
Right off the bat, the most common Fibonacci ratio is 61.8%. This ratio is a result of dividing any number in the sequence by the number that follows it.
21 follows 34. When you divide 21 by 34 = 0.6176.
55 follows 89, divide 55 by 89 = 0.6179
Do you see it?
Other Fibonacci ratios are
- 2% calculated by dividing a number in the sequence by a number found two places to the right e.g. 55 and 144
- 6% calculated by dividing a number in the series by a number three places to the right e.g. 8 and 34
I know you are itching to know how to trade these ratios. So here we go.
If you want to use Fibonacci ratios to trade on IQ Option, you will have to use Fibonacci lines.
What are Fibonacci lines?
Fibonacci lines are a very powerful universal technical analysis tool. With it, you can trade any trend, any asset, and at any time frame.
The tool is a combination of horizontal lines that comprise of the Fibonacci ratios we just saw, 23.6%, 38.2%, 61.8%, and 100%. Don’t worry yet because I will show you how to add the Fibonacci lines on IQ Option.
In the meantime, what are they used for?
Fibonacci lines are best suited for identifying possible support and resistance levels in a trend.
How to use Fibonacci lines in trading on IQ Option.
For you to benefit from Fibonacci lines indicator signals, you must first have an understanding of what resistance and support levels represent.
- Support occurs when the falling prices stop, change direction, and start rising again. Think of it as a ‘floor’ supporting the prices from falling further.
- Resistance on the other hand happens when the rising prices stop, change direction, and start falling. This is the invisible ‘roof’ preventing the prices from rising further.
Now, whenever the price reaches a certain point and reverses, it is called the retracement
Some trading experts believe that trend reversals normally happen around the Fibonacci retracement lines.
So what is retracement in trading?
Do not confuse trend reversal with trend retracement.
Trend reversal is when the price completely moves in a different direction.
Trend retracement, on the other hand, is when a price briefly defies the general trend and goes against it. This is temporary and will correct itself after some time.
The Fibonacci lines can be used to successfully identify both buying and selling opportunities during such moments.
During an uptrend, Fibonacci retracement lines will help you identify viable buying positions on pullbacks.
Alternatively, if a downtrend occurs, Fibonacci lines can help you determine profitable selling positions.
With that in mind, most traders believe 61.8% to be the most crucial retracement level.
Funny enough, this can be explained with basic market psychology.
You see, due to high pressure coming from buying and selling orders, this level is likely to experience very high price swings.
How to add Fibonacci retracement lines on IQ Option.
- Login to your IQ Option account, locate the Graphical tools tab, and select Fibonacci lines.
- Once you’ve done that click on the lowest price point on your chart (for an uptrend). Holding the mouse, drag your cursor to the highest price on the chart.
- During a downtrend, do the opposite by clicking on the highest price point on the chart and drag your cursor to the lowest price point on the chart
That’s how you add Fibonacci lines on the IQ Option trading platform.
The Fibonacci lines have 0 and 100 levels, therefore, on the chart, the 0 lines should be at the lowest price period while the 100 line should be at the highest price point.
This way, all the other lines will be distributed within the range. For example, the 61.8 line will mark a possible price retracement level.
Also, when you see the price approaching a retracement line, know that a trend reversal is imminent. Trade up or down depending on the trend on your chart.
Wrapping up on Fibonacci Retracement on IQ Option.
Fibonacci lines aren’t that complicated, either to set up or interpreting its signals.
Once you grasp how it works, you should be able to identify and trade retracement levels easily.
Now, your next job is to practice what you’ve learned. Use the IQ Option demo account. It’s free and comes with $10,000 virtual money.
Also Read: – How to Place Your First Trade On IQ Option.