Fibonacci Retrenchment Strategy In Binary Options
The Fibonacci Retrenchment tool is quite possibly the least understood and most intimidating at least for new binary options traders, and it is exactly what we’re going to use for trade analysis through this Fibonacci strategy, which is aimed at the call/put contracts as well as the Touch side of the Touch / No Touch trade. Retrenchments are some of the most prominent components of any uptrend or downtrend, regardless of its strength and it therefore makes perfect sense to build a trading strategy around this phenomenon.
Why are retrenchments such inevitable components of all financial markets though? Simple: the nature of the market says that those who jumped aboard a given asset early will look to stop and take some profits after a while, thus inducing a temporary reversal of dominant trend. Binary options traders are usually the ones to kick-start the profit taking, followed by the best traders.
Because this Fibonacci retrenchments strategy is such a trend-dependent one, the time frame used for it calls for daily charts. The reasoning behind it is simple: smaller time frame charts, like hourly ones, are rendered irrelevant because of all the noise occurring through the day. Daily charts offer a bird’s-eye view of market situation, which from the point of view of trends potting is exactly what’s required. What’s the actual strategy about though? The goal is to identify the point where a retrenchment move ends, by using the Fibonacci retrenchment tool. The asset-price will bounce back to the dominant trend at one of the Fibonacci levels, defined by the retrenchment tool, the only remaining question is: which of these levels are we talking about?
The Fibonacci retrenchment tool identifies five critical retrenchment levels, at which a trend-reversal is likely. These are situated at 23.6%, 38.2%, 50%, 61.8%, and 100% of the retrenchment levels.The Fibonacci retrenchment tool is put into application by first tracing a line linking the lowest price-point of time frame with the highest one (these are also known as the swing high and the swing low). Once this has been done, defining the area of interest on the chart, the five Fibonacci levels will appear on the chart as horizontal lines, at the above said percentage-points.
The Fibonacci retrenchment levels are the possible targets for the Touch component of Touch / No Touch contract. Statistically, most retrenchments break the first two Fibonacci levels (those at 23.6% and 38.2%) without problems, so the strike price for the Touch trade should be placed on the 38.2% mark, but only after the retrenchment has breached the 23.6% level. The expiry on this trade which is the straightforward way to trade the Touch / No Touch contract with this strategy should be set to all day long. Don’t let the seemingly daunting expiry scare you: it will, in fact, increase the chances of success for the trade.
The second method to trade the Touch / No Touch is a bit more complicated and it calls upon the stochastic oscillator for help. It is based on catching the resumption of the previously dominant trend. The stochastic oscillator is needed to confirm the end of retrenchment period. Once this step has been cleared, binary options traders need to set the previous Fibonacci retrenchment level as the strike price for the Touch trade. If the retrenchment ends on the 38.2% Fibonacci level as on the attached chart, the strike price should be set to the 23.6% level.
Thank you for reading our Fibonacci retrenchment strategy review, please follow the exact instruction and if you have more questions don’t hesitate to contact us privately or leave a reply below. In addition,visit our Top recommended strategies page to read more interesting reviews. If you are new to binary options trading open a free demo account before you invest real money with an EU recommended broker like Markets.com with a minimum initial deposit of $100! In order to improve your monthly income it is highly recommended to trade with a reliable service like Mike's auto trader our TOP recommended auto trader but for more trusted services you are welcome to visit our reliable services list.
** Join Mike's signals group on Facebook with more than 3000 real and active traders from all around the world!