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.

Fibonacci Retracements in Binary Options

Using Fibonacci Retracements to Trade Binary Options

Fibonacci Retracements have become a popular method among investors to help develop a strategy towards trading binary options. Although the name may sound complicated, Fibonacci Retracements can be easy to understand, granted you can remember a few important numbers.

What is the Fibonacci Retracement Tool?

In any stock, commodity or, in this case binary option, you can track its price via a price versus time chart. Here you can easily see the high and low points the option has reached in any given amount of time.

Fibonacci Retracements use the high and low points of each option to trace horizontal lines over top of the chart. 100% and 0% lines are traced at the high and the low points, respectively. Three additional lines are added in between at 61.8%, 50% and 38.2%. These percentages have been determined mathematically and are the same for all Fibonacci Retracements.

It has been historically shown that as the price of a stock or option moves, the support and resistance points are typically at or very close to these lines, therefore allowing investors to better understand how an investment is likely to react to changes in the market.

How Can Fibonacci Retracement Help With Binary Option Trading?

Since the percentage lines drawn on the chart help predict where changes will occur, it can help you to predict when is the right time to purchase or sell your binary option. For example, in a downward trend option after the low point, according to Fibonacci Retracement, we expect that the option will have an upswing but only as far as one of the Fibonacci percentages. Thus, purchasing this option with the prediction that the price will drop before it reaches either the 38.2 or 50th percentile tends to be in line with past trends in the market.

Alternatively, a prediction that the option would rise above the 61.8th percentile would go against the Fibonacci Retracement and therefore be less likely to occur, resulting in a potential loss.

Is Using Fibonacci Retracement for Binary Options Foolproof?

In short, no. Although Fibonacci Retracement is a good indicator of past trends that can be utilized to predict future trends, there are many factors that make it inconsistent. For example, a novice trader will tend to use Fibonacci Retracements directly as they are plotted on their chart. This is in contrast with an experienced trader who knows to adjust the percentiles to better fit the layout of the specific asset’s chart, thus giving a better prediction of when the retracements will occur.

As you become more experienced using Fibonacci Retracements with binary options, you will begin to gain an understanding of whether the Fibonacci lines are correct or need adjustment. Secondly, since the market itself is volatile, it is impossible to predict with 100% certainty that an event will happen at a certain point in time, thus it is important to be prepared for a certain degree of risk when dealing with binary options.

What Type of Binary Options Can Fibonacci Retracements Help With?

Since Fibonacci Retracements simply overview trends that are likely to occur in the market, they can be used with any type of binary options. As with any investment, before you use Fibonacci Retracements with more complicated binary options such as double touch options, consider using a demo account to trial what you have learned.

With tried and tested mathematical tools such as the Fibonacci Retracement at your disposal, you can make educated decisions on how and when to trade binary options. Take the time to fully understand the process and talk to those with experience to gain a better understanding of different investors’ strategies for utilizing them. Before you know it, you will be trading with the best.

FIBONACCI AND TRENDLINES STRATEGY

Fibonacci levels and trendlines are manually drawn indicators and both help us define fixed support and resistance levels on the technical chart. Additional indicator, such as Stochastic, will give information about relative oversold and overbought zones. Learn how to use these levels for your profit.

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Fibonacci Strategy Outline

Presented strategy is suitable for intermediate and advanced traders, since it requires some knowledge of price action to be able to produce consistent winning results. Once it is practiced and mastered, it can be turned into one of the strongest trading strategies for binary options.

Strategy it is built for currencies trading (Forex) and can be applied to any currency pair and any timeframe.

The analysis is done manually with aid of some indicators, but mainly uses Fibonacci extension and retracement levels and trendlines in combination with oscillators (such as Stochastic).

The main highlight of this strategy is that it can be used in any type of market and a trader can always find good trade entry positions.

Binary Options Strategy with Fibonacci, Trend Lines and Stochastic

This trading strategy offers a lot of flexibility and personalized approach, since each trader would use Fibonacci tool to measure different trends, but no matter which trend is measured the Fibonacci levels will always act as support and resistance levels.

Using the absolute Fibonacci support and resistance levels of 50, 127 and 161.8, measured with Fibonacci tool in combination with stochastic relative overbought (above 80) and oversold (below 20) zones will give a trader information about possible levels where short and long term reversals can be expected.

Medium or strong trading market is perfect for this type of trading, especially if Fibonacci extension levels are traded (127 and 161,8 or even 261,8). However if the market is in a range, any of Fibonacci retracement levels can be traded as well (23.6, 38.2, 50, 61.8 and 100; 50 retracement level being in most cases the most valid as the resistance level).

Additional confirmation can be done with trendlines and pullbacks are traded only when a candle crosses and closes above or below the trendline.

Entry is made in the direction against the market trend (reversal or pullback).

When trading on 1 minute or 5 minute charts, expiry time of 5 to 10 minutes is advised.

On the Fibonacci level 127 a reversal is usually shorter (5 minutes), but if the price breaks the level 161.8 a longer reversal can be expected and longer expiry time can be selected (10 minutes).

The trade should be placed only after the price breaks our traded Fibonacci level and the full candle closes above or below our traded level. If at the same time the price is crossing some of trend line support and resistance levels, this gives additional confirmation about possible reversal.

A bit of practice is required to recognize some price patterns to be able to find most profitable trades. However, as explained before, mastering this type of trading will allow the trader to trade in any market.

Trade the Put/Call and Touch Options with the Help of the Fibonacci Retracement Tool

Trade the Put/Call and Touch Options with the Help of the Fibonacci Retracement Tool

2 Comments

Last Updated: Sep 1, 2020 @ 1:33 pm

Due to the very nature of markets, regardless of the strength of a given trend in an asset-price, retracements are always parts of the equation. Retracements happen for a very logical reason: no matter how quickly an asset-price gains momentum, there will always be trading entities out there (institutional players or individual traders), who will decide to take their profits. Even though strong trends survive such profit taking and continue unabated on their previous path, the retracement will be there, representing a great opportunity for options traders who know how to take advantage of them. The Fibonacci retracement tool, which is regarded as one of the least understood indicators in trading, is one of the best tools one could ask for when it comes to trading the Touch component of the Touch/No Touch contract as well as the Put/Call contract. How exactly do we put it to use? Let’s start with the beginning.

For the system built upon the use of the Fibonacci Retracement tool, we’ll use daily charts for the analysis. This is extremely important, not only because of the way it impacts the actual expiry times on the trades (as you’ll see below), but also because smaller time-frames (like hourly charts) simply will not work for the sort of analysis we have to do. Such time frames come loaded with what they call intra-day noise, which has little to do with actual trends and trend-retracements and which can indeed be extremely confusing. Something that may look like a retracement on one of these charts will simply turn out to be part of a completely different trend on the daily chart. To make a long story short: we need the daily chart to make sure we do indeed spot the profit-taking-induced retracements we’re looking for.

Let’s see what the actual strategy is about though. What we’ll do is we’ll use the Fibonacci retracement tool to set a number of possible price targets as the retracement gets underway (essentially targets the price-action is likely to reach). While the system can be used for the trading of the Put/Call options, it is not suitable for the trading of the No Touch option (only the Touch component can be traded as said above). For the Touch trade, one of the price-targets pointed out by the Fibonacci tool will be the actual strike-price.

How do we use the Fibonacci retracement tool though and how does it work? The tool sets 5 potential retracement points, which correspond to the following retracement levels: 23.6%, 38.2%, 50%, 61.8% and 100%. These levels will determine our potential strike-prices on the chart.

There are two potential scenarios in which we can call upon this strategy. The first one is when we have an uptrend experiencing a downward retracement. The second one is a downtrend seeing an upward retracement.

In the first case, we take the Fibonacci retracement tool and we link the lowest price-point on the chart with the highest one (the swing low to the swing-high). In the second case, we link the swing high to the swing low. The tool will then automatically draw up the 5 Fibonacci retracement levels which we’ll be able to use for the strategy. In case we use a Fibonacci tool off a website, we will simply have to feed the swing high and swing low values into it manually, after which it’ll give us the retracement level values, which we’ll be able to draw onto the chart.

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For the Call and Put trades, we’ll need to find the end of the retracement, which will occur at one of the Fibonacci levels. Since there are 5 such levels though, we’ll need to bring in the stochastic oscillator to be able to identify the actual strike-price for the trade. If we are dealing with an upward main trend, we’ll look for the lines of the stochastic oscillator to cross on an oversold level ( 70) on one of the Fibonacci retracement levels. If we find this point, this is where the Put trade is warranted. Both the Call and the Put trade has to be placed as soon as possible after the above said conditions are fulfilled (preferably on the very next candlestick).

Given that we have used the daily chart for analysis as said above, the expiry on these trades should be set to at least 7 days.

The Touch trade can be traded in two different ways with this system. The first method is the “straightforward” one, the one aiming to take advantage of the actual retracement, rather than the subsequent return of the dominant trend. The theory behind it is that once the retracement begins, it is likely to break through the 23.6% and 38.2% levels. With that in mind, the trader will wait for the asset-price to cross the 23.6% level and if the retracement continues, the Touch trade is placed, using the 38.2% level as the strike-price. The expiry on this one should be set to at least 10 days.

The second method is a little more tricky, as it’s aiming to take advantage of the return of the original trend after the retracement blows off its steam. Because we need to find the end of the retracement, we will once again use the stochastic oscillator. We will once again use it in the manner described above. Once the end of the retracement has been located, we’ll use the previous Fibonacci retracement level as the strike-price for the trade.

All this makes perfect sense of course, but before you actually take the system into a real money trading situation, you should put it to the test through a risk-free demo account and see if you really do master it.

Philip Thalberg has been trading binary options since the first online brokers started popping up. He is currently a full-time professional trader and an enthusiastic user of automated binary trading software, which is what his personal site is about too.

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