Don't be surprised to hear that when used alone, Fibonacci study will be somewhere around 50% accurate. Yes, that's right. If you use only Fibonacci to predict market direction and set your entry, you could be very soon disappointed with overall Fibonacci performance. However, when used in combination with other technical indicators or studies — Fibonacci becomes up to 96% accurate! That's the probability we want you to trade!
So, when do traders use Fibonacci tool? Only when they already know what the market is up to: rising or falling. If it is unclear — they stay out. This means that you shouldn't use Fibonacci to guess on market direction, you should use Fibonacci to confirm your already formed views.
How do traders find what the price "has in mind"? They use additional technical indicators and studies, such as, for example, moving averages, trend lines, Pivot points, chart patterns analysis etc.
When traders can finally tell the direction of the price, only then they set up Fibonacci and look for confirmation and good entry points.
To help you begin your research of useful confirmation tools try setting up RSI (14) on a daily chart. Even if you trade 1 hour chart, RSI should be daily. Watch, if indicator shows below 50, then you can follow Fibonacci signals on 1 hour chart to go short, if above — only long. It won't be an absolute solution to all situations, but can bring Fibonacci effectiveness to a new more successful level.
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