Fibonacci Retracement Lines as an Advanced Option Strategy

Fibonacci Retracement Lines as an Advanced Option Strategy

Submitted by adil on Mon, 06/02/2014 - 09:28

Getting Advanced with Fibonacci Retracement

Before going into detail about Fibonacci Retracement Lines, it is important to understand the basic concept of Fibonacci number theory. This theory was put forward by Leonardo Pisano (also known as Fibonacci). The Fibonacci number theory is based on the sequence of numbers where the numbers are derived by adding the previous two numbers. The sequence starts from zero and then progresses by adding the preceding two numbers to calculate the next number in the series. Therefore, the Fibonacci series is formed like 0,1,1,2,3,5,8,13,21,34,55,89..etc.

These Fibonacci numbers follow a very popular ratio called Golden Ratio. This ratio is one of the most important ratios and is considered as a foundation of life. By using this golden ratio, technical analysts have derived the following percentages that are applied in the financial trading through technical indicators called Fibonacci retracement:

• (34-21)/21 = 61.8%
• (34-21)/34 = 38.2%
• (34-21)/55 = 23.6%

According to fundamental and technical analysis, past trends are indicative of what will happen in the future. Fundamental analysts rely on the historical data to prepare a forecast while technical analysts observe the historical currency price movements for the same reason. Therefore, Fibonacci analysis can be taken as a technical analysis that is parallel to the fundamental analysis of the rate of interest and trade flows. This analysis is useful to forecast price targets of a project and the level of support and resistance.

Fibonacci Retracement Lines

With the help of Fibonacci Retracement Lines, various points can be identified by the traders and they can define where the support and resistance lines should be without considering the time frame. These Fibonacci retracement lines are considered as an ideal binary option strategy for traders because it helps them identify barrier points while trading the binary options.

No one can deny how useful and accurate Fibonacci technical indicators are, yet they have certain flaws. For example, they are suitable for short term trades, and are not good for trades with a longer period. Therefore, you should only count on this strategy in order to find out the best spot, but before doing so, it is important to confirm the findings of Fibonacci analysis through other means of analysis.

Fibonacci Retracement Lines are good for plotting strategic places for transactions and for identifying the points where price stability will be achieved. With the help of this strategy, you can clearly see the direction of the price and where the price will settle once the binary options market starts to ease up in terms of volatility. Based on the information gathered with the help of Fibonacci retracement lines, you can design other possible strategies that you can use in order to capitalize on the movements of the prices in the binary options market. It will definitely be very beneficial for investors and they will be able to earn a reasonable profit on the basis of this strategy. So, it is safe to say that despite the possible flaws, using Fibonacci retracement lines is worth it, as long as a trader can double check its results with alternative means.