Using Fibonacci Levels in order to Find the Perfect Strike Price
Finding the Right Striking Price
The issue of finding the right striking price is a crucial issue if we want to trade with binary options. This issue requires a lot of patience and a big majority of traders lack exactly this. The combination of the fundamental analysis and the technical analysis is very important if we want to successfully trade and consequently, technical analysis is impossible without the use of the Fibonacci levels. By far, the most important Fibonacci level is 61.8 percent. However, we should not be buying call and put options just like that when the price reaches this level because there are many other things that affect the trade and it is not as simple as it sounds.
What the trader should be doing is taking into account the patterns that are being created and only then associate the Fibonacci levels with those patterns and here is an example. Trading in the case of contracting triangle requires significant retracement for the given leg of a triangle and because of that trader should be looking for the level of 61.8 percent is appropriate.
Additionally, if it happens that you are trading with the flat or ZigZag pattern, the key for success, in that case, is actually the 61.8 percent level because this level is mandatory when it comes to the flat patterns but it should be avoided in the case when we are dealing with the ZigZag patterns.
The Use of Elliott Waves Theory
According to the Elliott Waves Theory, the impulsive move should be expected to appear after the retracement somewhere in the 50 – 61.8 percent level. Fibonacci and Elliott Waves Theory are closely connected when dealing with the trading and us, as many others believe that one without the other is simply not possible. Moreover, the entire Elliott Waves Theory is actually based on the Fibonacci numbers and the use of those levels provides us with the opportunity to find the perfect striking price before you actually buy or sell binary options.
Any impulsive move that appears should have the extended wave and that extension is consider to actually be any wave that appears and that is bigger than the 161.8 percent level. This, in turn, is the minimum level in order for a wave to be considered to be the extended and there is no point in staying in that position and move forward in that direction in cases when the 161.8% level is reached and the best thing to do in that case is to move in the opposite direction.
Fibonacci and Corrective Waves
When it comes to the corrective waves, everything comes down to the 61.8% Fibonacci level when we want to find out what type of the correction the market is forming and after that to look at that type of the correction. Here is an example. When the market is creating the flat pattern, the knowledge of what kind of flat pattern that is – is based on the Fibonacci retracement of the wave B when we compare that wave to previous, wave A is very important. Because of that, the levels such as 80%, 123.6% as well as 138.2% are the levels that will provide a good opportunity for us to trade the binary options in the other direction when we will be looking for the wave C and the new impulsive move to appear.
Traders have strong tendency to look for the third wave to actually be the biggest wave in the five wave structure plan and this is true in the majority of cases. However, this is not true in all cases. What traders are doing is looking for the second wave to retrace somewhere between 50% and 61.8% because in that area the striking prices for the call options will have the biggest chances to bring us the profit in the case when the impulsive moves happen to be the bullish one.
Even in the cases when the market will not be forming the second wave down, the possibility exists for that move to go more than 61.8% retrace into the territory of the first wave that will result in wave An only being the part of the second wave that will come later. This is also a very good notion for trading call options in cases when the impulsive move is actually bullish because the wave B should be retracing a bigger part of the wave A and because of that, the move will still be a heading upside.
The Gartley trading method is also another good way to use the Fibonacci levels in order to find the right striking price. However, this method depends a lot on the 80% retracement level in cases when it comes to the four-wave move or A-B-C-D and by the time that the previously mentioned is reached, traders can trade their options in opposite direction. Besides that, the Gartley method is a risky move and it does not work in many cases. However, considering the rate of the investment return, the Gartley trading method is a potentially good trading tool.
Let’s go back to the Elliott Waves and our attempts to interpret the Fibonacci levels and the extensions on any move that appears that are not connected to the 161.8%. As we have mentioned earlier, that level is the minimum level and extensions of 261.8% and even 461.8% are also possible and they are a common thing. The more impulsive move is traveling the more aggressive the option that will be traded should be.
In this case, the most common consolidation areas create a triangle and it needs to be said that that the leg of a triangle is in majority of cases it is breaking the 50% retracement level when we compared it to the previous leg of the given triangle. With all that in mind, for trader, trading call options in the bearish move that features the expiration dates bigger than the time frames that it takes the triangle to be formed is a good way for a trader to make a successful option trade.
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