Fibonacci Touch Binary Options Strategy

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Trading Binaries with the Fibonacci Tool

A Sure-fire Way of Trading Binaries with the Fibonacci Tool

In my experience dealing with retail traders, I have come to discover that the Fibonacci retracement tool is one of those lesser used technical indicators in market analysis. Mention the MACD or moving average indicators and traders will immediately brighten up with recognition. But talk about Fibonacci and everyone just draws blank.

Retracements are a normal part of trading. They occur all the time and a trader needs to know how to use retracements to his advantage. This is what the Fibonacci retracement tool does for you. The tool plots five horizontal lines on the charts which correspond to 5 possible areas to which prices may retrace, with the distances expressed in terms of percentage of the original move:

Prices can retrace to any of these points. So how would you use the retracement tool to trade binary options?

If I were to trade binary options using retracement, this is what I would do:

1) I would select a strongly trending financial instrument, such as gold, EURJPY, GBPJPY or EURUSD.

2) I would select a time frame that will confirm that what is playing out in the market is actually a retracement and not something else. I would therefore choose the Daily chart.

3) I would purchase a “Touch” option in the Touch/No Touch trade type as my preferred trading option, picking a point between current prices and the 23.6% retracement point.

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Trade Technique

Take a look at the Daily chart for the EURUSD. Note that by selecting this chart, I have already fulfilled my first two trade conditions. It is a daily chart, showing me when a retracement is actually occurring, and the EURUSD trends well, being the most actively traded currency pair in the market.

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I am now looking for how to fulfil my third condition, which is actually my trade objective. I want to pick a strike price at a point along the course of the price retracement, between the market price and the 23.6% Fibo level. To do this successfully, I must be sure that a retracement is actually in progress. How do I confirm this?

Look at the area where a blue arrow points to “drag Fibo tool here” on the left side of the chart. The bullish momentum of the EURUSD has actually been checkmated by the formation of a reversal candlestick pattern, a bearish harami. An expanded version of that point is shown below:

Occurring at the peak of a bullish momentum is a clear reversal signal. The retracement followed soon after, and went all the way to the 50% retracement point.

Trading binary options is not rocket science. It just takes a trader knowing what to do and when to do it. But it also requires that the trader must be quite knowledgeable about topics such as candlesticks, chart patterns, etc. A trader has to be thoroughly at home with the candlestick patterns. If there is any topic in the financial markets that deserves attention, this is it. With candlesticks, you can determine price direction easily, and then add other tools to increase the success rate of your trade calls.

Binary Options Fibonacci Strategy

The retracement tool is probably the least understood, especially among the new traders. They hardly realize about the importance of having this tool by their side in order to take their trading to the next level. Retracements are one of the most prominent elements of any uptrend; therefore developing a trading strategy around this phenomenon can be a wise decision to take.

Percentage Retracements: A Brief Understanding

They are some essential tools that are especially made for swing traders, helping to decide how far the correction will go. You might know that market creates trends and it never goes in a straight line. And as for the trends, they keep on taking zigzag routes while building higher highs alongside higher lows during uptrend and the opposite in downtrends.

Precisely, the market is in continuous movement, fluctuating between high and low. And the movement against the usual trend is known as the correction (retracement). Since the swing traders try every possible ways to benefit from the single movement, regardless of the high or low, they have to be capable of predicting the future movement of the retracement. This will help them to determine whether the touch option will be a good investment in the present environment or not or should they still consider investing in the retracement or wait till the trend returns to the main direction.

Percentage Retracement Occurrence

To go by the past, the correction is likely to move one third, or say half the distance of the existing movement. Well, the exact percentage value that the traders use for estimating the retracement’s size varies. Where some traders use 50% to 60%, the others have faith in Fibonacci retracement, which is a series of number developed by the famous Leonardo Fibonacci. In here, every number is the total of two preceding number. For example, 0, 1, 2, 3, 5, 8, 13, so on and so forth.

The traders use these numbers for calculating the movement’s distance. The majority of the good charting software like Meta Trader can get percentage retracements to the traders’ chart automatically, whereby saving them from calculating in pen and paper.

Trading strategy using fibonacci retracement

Trading Percentage Retracements

When trying to build an automated system for trading, you should make a decision on the values to be used. Essentially, you need to understand that correction in a trend never ends at a particular percentage value. Instead, this ends at a point near a percentage value. So, in that case the trader will have to use a wide range of percentages, like 33% to 38%.

Being a regular binary option trader one should not let the discussion on various percentage values confuse oneself. It’s better to go by the one third, two third, or a half, indication. If you are thinking of investing in high or low options, use percentage retracements in order to search for an indication of the impending conversion in the price direction close to the price levels. On the other hand, if you are investing in the touch options, use percentage retracements as the determining the distance a correction would move.

The Fibonacci Retracement Binary Options Strategy

08/15/2020 6:00 am EST

In this article, the staff at FXEmpire.com discusses two instances in which trading with the Fibonacci retracement tool favors the trader.

The Fibonacci retracement tool is quite possibly the least understood and most intimidating—at least for new traders—indicators, and it is exactly what we’re going to use for trade analysis through this strategy, which is aimed at the call/put contracts as well as the Touch side of the Touch/No Touch trade.

Retracements are some of the most prominent components of any uptrend, regardless of its strength and it therefore makes perfect sense to build a trading strategy around this phenomenon.

Why are retracements 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 the dominant trend. Institutional traders are usually the ones to kick-start the profit taking, followed by the rest of the traders.

Because this 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 the market situation, which—from the point of view of trendspotting—is exactly what’s required.

What’s the actual strategy about though? The goal is to identify the point where a retracement move ends, by using the Fibonacci retracement tool. The asset-price will bounce back to the dominant trend at one of the Fibonacci levels, defined by the retracement tool, the only remaining question is: which of these levels are we talking about?

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The Fibonacci retracement tool identifies five critical retracement levels, at which a trend-reversal is likely. These are situated at 23.6%, 38.2%, 50%, 61.8%, and 100% of the retracement levels.

The Fibonacci retracement tool is put into application by first tracing a line linking the lowest price-point of the 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.

These retracement levels are the possible targets for the Touch component of the Touch/No Touch contract. Statistically, most retracements 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 retracement 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 ten days. 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 the retracement period. Once this step has been cleared, traders need to set the previous Fibonacci level as the strike price for the Touch trade.

If the retracement ends on the 38.2% Fibonacci level as on the attached chart, the strike price should be set to the 23.6% level.

NEXT PAGE: A Tad Bit Different Trade

A word of caution: this strategy is unfit for the trading of the No Touch component of the Touch/No Touch contract.

The Call/Put trade is a tad different. This approach is about putting the Call/Put trade (whichever is needed based on the direction of the dominant trend), at the point where the retracement ends and the original trend resumes. This is obviously at one of the Fibonacci levels, but one will need the help of the stochastic oscillator to determine exactly which one. The stochastic oscillator will indicate a situation when an asset is oversold having retraced from an uptrend, at one of the Fibonacci levels. That level is where the retracement is likely to end.

The Call trade should be purchased on the Fibonacci level on which the stochastic oscillator crosses at an oversold level.

On the chart used for illustration, this level is obviously the 38.2% one, which is where the Call trade should be purchased.

The expiry time on this trade should be almost as generous as on the above described Touch trade. In this instance, it should be set to about seven days, to give the asset price plenty of time to move in the right direction (again: we’re using the daily chart for this).

Unlike the No Touch part of the Touch/No Touch contract, the Put component of the trade can be used too with this strategy. In this case, everything works pretty much by analogy. Where the lines of the stochastic oscillator cross an overbought situation on the Fibonacci retracement level, a Put trade should be purchased, since that point marks the end of the retracement and the resumption of the bearish trend.

As with any binary options trading strategy, it is recommended that you put this one to the test—preferably several times—on a demo account, so you risk no real money on it. Once you feel comfortable with it and you feel you can aim for actual results, throw this puppy into deep water and take it for a spin. While the above presentation was one disregarding several complex, probability-linked aspects of the strategy for the sake of simplicity, the probabilities and the expected value involved all work—at least, theoretically—in favor of the trader.

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