EUR/USD Forex Binary Options: Limitations in Identifing Entry Signals When Using Fibonacci Levels
EUR/USD Forex Binary Options: Limitations in Identifing Entry Signals When Using Fibonacci LevelsApril 9, 2013
A lot of technical traders use Fibonacci Levels to trade Forex binary options (a.k.a currency pairs). However, most don’t really understand how it works and how to select the best trading software and platform. Needless to say, the strategies that can be utilized in order to identify the correct entry and reversal signals are all dependent on your understanding of the markets and the tools you are using. If you have any doubts, it’s best to inquire because it can get really dicey out there if you don’t know exactly what you are doing.
The Limitations of Using Fibonacci
Using this method of trading poses two major problems:
1. The technique utilizes a series of lines that are identified at the relevant or most significant turning or pivot points. However, when you actually try to make sense of it all, you start seeing inconsistencies and jolts in the stock movement. The outcomes or pivot points start to look messy and you can’t draw conclusions in order to invest.
2. For intraday trading you will probably use multiple time-frames. For example, I like to use the 5, 10, and 30 minute charting options before I execute a trade. For the end of day trading I use 60, 90 minute time-frames, but I also refer to a wide assortment of parameters based on weekly and even monthly historical data. The problem is time constraints, because when I finally draw Fibonacci Levels in either case the pivot points become a bit irrelevant in many cases and I have a problem making sense of it all.
The solution to this problem is most commonly referred to as tweaking fib levels. Software guru John Novak developed proprietary software called the T-3 Fibs Accumulator. Now, I know this sounds like a machine you use to get your heart pumping via electric shock, and ironically speaking that is what I needed when I first saw this baby in action. The software not only automatically identifies, but also plots Fibonacci levels by utilizing around 40-50 different time frames as well as key pivots simultaneously.
The end result is a set of recommendations based on a predictive analysis of confluence levels (a.k.a. resistance lines) that empower you by allowing you to view exactly where a commodity, stock, or in this case currency has the highest level of probability for slowing down and/or reversing on the intra-day charts.
To wrap up, using Fibonacci to trade Forex Binary Options has a set of built-in limitations. When your pivot points stop becoming effective, that’s your signal to do two things: First thing is to put that credit card back in your wallet stop making trades. Secondly, take a step back and reevaluate your positions and level of exposure.
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