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Why your Fibonacci Retracement doesn’t work? 3 Ways to go wrong drawing fibos


Fibonacci retracements drawing mistakesTraders use different tools of technical analysis. They need to be utilized properly otherwise they will bring poor results. Today I will show you how to avoid mistakes when using Fibonacci Lines. It is a popular indicator available on the IQ Option platform and described previously in detail in our Guide to Using the Fibonacci Lines to Trade Trend Retracement.

Fibonacci Retracement

Once you are logged in to your IQ Option trading account, make decisions about the asset to trade and the investment amount. Then, go to the graphical tools icon and you will find Fibonacci Lines.

Fibonacci Retracements (Lines) on IQ Option
Fibonacci Retracements (Lines) on IQ Option

Fibonacci Retracement or Fibonacci Levels or Lines measure upward and downward waves on the chart and thanks to this, are useful in identifying potential support and resistance levels. Naturally, they will serve only if you apply them correctly. How can it go wrong? Let's see.

Missing the beginning or the end of the wave

Fibonacci lines drawn on the shadow-to-shadow basis
Fibonacci lines are drawn on the shadow-to-shadow basis

An upward wave begins at the bottom of the chart and moves to the top. A downward wave has an opposite direction, starts at the top, and goes to the bottom. You can see the tops and bottoms easily on the chart. The top is the highest point of the candle, the body, or the shadow. The lowest point will constitute the bottom.

You have to be consistent when drawing the lines. They have to be exactly at the bottom and the top. If you do not draw them correctly, you will miss opportunities or even lose money.

Look at the chart below and compare it with the chart above. On the chart below, level 61.8 is totally ignored. It is because the whole drawing is wrong.

Important level of 61.8
An important level of 61.8 is ignored probably because Fibonacci Lines are not valid

Inaccurate time frame

Generally, Fibonacci Retracement can be used in various time frames. However, the smaller timeframe, the closer the Fibonacci lines to each other. This may result in wrong readings.

Finacci Lines
You can't take Fibonacci Lines serious when the most important levels are so close to each other

The best idea is to use at least 5 minutes chart timeframe. With the higher period, the Fibonacci Retracement will show better indications of future support and resistance.

Not getting a confirmation

It is wise to confirm trading signals. Entering the position without getting confirmation can lead to losses. It is also the case with Fibonacci Levels. So add some extra indicators such as an oscillator to obtain a signal validation. The Stochastic Oscillator works very well with the Fibonacci lines. You can observe divergences when the price reaches an important Fibonacci level. This is great confirmation that the price movement can reverse. Take a look at the “Cable” (GBPUSD) chart below. There is a bullish divergence when the price is approaching an important level of 61.8.

use divergences to confirm price reversal
You can use divergences to confirm price reversal on important Fibonacci level

Final words

You can successfully use Fibonacci Retracements when you are doing it correctly. Adjust the timeframe of the chart, 5 minutes or more will be all right. Draw the lines precisely at the beginning and end of the waves. And do not forget to get some confirmation for the signals received.

Go to the IQ Option demo account and try to determine support and resistance levels with Fibonacci. Practice as long as you need to. It costs no money to use the demo account. After some time you will feel ready to start trading with real money.

Good luck!

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