Fibonacci levels and price action around those levels give traders clue what they should do with their potential trade setup. The 61.8% level is the most significant level, which is paid attention by the traders to make a trading decision. The price usually goes towards the level of 161.8% when it trends from 61.8%. Since it creates enough space for the price to travel, different traders trade and make use of the wave-length in differently. We will learn some other strategies that are integrated with Fibonacci levels. Meanwhile, let us demonstrate an example of a chart where the price reacts at 61.8% and trends towards 161.8% afterwards.
The chart shows that upon producing a double bottom, the price heads towards the North and makes a new higher high. The buyers are to wait for the price to make a bearish correction now.
The price heads towards the South upon producing a bearish inside bar. The last candle comes out as a bearish engulfing candle closing within a flipped support. Let us wait and see whether the level produces a bullish reversal candle.
The price produces three bullish candles at the flipped support. The last candle looks to be the strongest one. The price may head towards the North and makes a breakout at the highest high of the wave.
As expected, the price heads towards the North and makes a breakout at the highest high of the wave. The price continues its journey towards the North further. The last candle on the chart comes out as a bullish candle having a long upper shadow. Do you notice anything interesting here? Look at the next chart.
The price after making a bullish move, it starts having a bearish correction. The price consolidates around the 61.8% level. It produces a hammer and heads towards the North. It makes a breakout at the last highest high and heads towards the North with good bullish momentum. The price hits 161.8% as it usually does when it trends from 61.8% level.
Some traders go long in this chart before the price makes the bullish breakout. As long as 61.8% level produces a strong reversal candle, they trigger their entry. It provides an excellent risk-reward but less winning percentage. On the other hand, some traders trade once the price makes a breakout. This offers not that great a risk-reward but an excellent winning percentage.