Fibonacci retracements and extensions are a popular tool used by traders to identify possible price levels of support and resistance in the forex market. One lesser-known application of Fibonacci ratios is the Fibonacci triangle, which can also be used to help traders identify potential price levels. In this article, we will explain how to plot a Fibonacci triangle in forex.
What is a Fibonacci triangle?
A Fibonacci triangle is a charting pattern that consists of a series of triangles, each of which is based on the Fibonacci sequence. The Fibonacci sequence is a series of numbers in which each number is the sum of the two preceding ones, starting from zero and one. The sequence goes as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and so on.
To plot a Fibonacci triangle, traders take the first two numbers in the Fibonacci sequence (0 and 1) and use them as the base of the first triangle. The height of the triangle is the third number in the sequence (1). The second triangle is formed by using the second and third numbers in the sequence (1 and 1) as the base and the fourth number (2) as the height. Each subsequent triangle is formed by using the base of the previous triangle and the next number in the Fibonacci sequence as the height.
How to plot a Fibonacci triangle in forex
Step 1: Identify the starting point
To plot a Fibonacci triangle in forex, you need to first identify a starting point on your chart. This could be a swing high or swing low, or any other point that you think is relevant. Once you have identified your starting point, use the Fibonacci retracement tool to draw a line from the starting point to the next swing high or swing low.
Step 2: Identify the base of the first triangle
The base of the first triangle is the distance between the starting point and the first swing high or swing low. Take note of this distance and draw a horizontal line at this level.
Step 3: Calculate the height of the first triangle
The height of the first triangle is the next number in the Fibonacci sequence after 1, which is 2. To calculate the height, multiply the base of the triangle by the Fibonacci ratio of 0.618. For example, if the base of the triangle is 100 pips, the height would be 61.8 pips (100 x 0.618).
Step 4: Plot the first triangle
To plot the first triangle, draw a line from the starting point to the horizontal line you drew in step 2. Then, draw another line from the ending point of the first line to the height you calculated in step 3. Finally, draw a line from the height back to the starting point to complete the triangle.
Step 5: Identify the base of the second triangle
The base of the second triangle is the distance between the first swing high or swing low and the next swing high or swing low. Take note of this distance and draw a horizontal line at this level.
Step 6: Calculate the height of the second triangle
The height of the second triangle is the next number in the Fibonacci sequence after 2, which is 3. To calculate the height, multiply the base of the triangle by the Fibonacci ratio of 0.618. For example, if the base of the triangle is 150 pips, the height would be 92.7 pips (150 x 0.618).
Step 7: Plot the second triangle
To plot the second triangle, draw a line from the ending point of the first triangle to the horizontal line you drew in step 5. Then, draw another line from the ending point of the second line to the height you calculated in step 6. Finally, draw a line from the height back to the starting point of the first triangle to complete the second triangle.
Step 8: Continue plotting triangles
Continue plotting triangles using the same method as steps 5 to 7. Each subsequent triangle will have a base that is the distance between the previous swing high or swing low and the next swing high or swing low, and a height that is the next number in the Fibonacci sequence after the previous height.
Conclusion
The Fibonacci triangle is a powerful tool that can help traders identify potential price levels in the forex market. By plotting a series of triangles based on the Fibonacci sequence, traders can identify areas of support and resistance that may not be visible using other technical analysis tools. By following the steps outlined in this article, you can easily plot a Fibonacci triangle in forex and start using this powerful tool in your trading strategy.
