Fibonacci retracement is a powerful tool that uses the mathematical Fibonacci sequence to identify potential support and resistance levels in forex markets.
Key Fibonacci Levels
- 23.6% - Shallow retracement
- 38.2% - Moderate retracement
- 50.0% - Mid-point (not Fibonacci but important)
- 61.8% - Golden ratio
- 78.6% - Deep retracement
Trading Applications
1. Trend Trading
- Draw Fibonacci levels from swing low to high (uptrend)
- Draw levels from swing high to low (downtrend)
- Look for price reactions at key levels
2. Entry Points
- Wait for price to retrace to Fibonacci level
- Look for confirmation signals
- Consider multiple timeframe analysis
3. Exit Points
- Use extension levels for profit targets
- Combine with other technical indicators
- Monitor price action at key levels
Best Practices
- Always trade in the direction of the main trend
- Use with support/resistance levels
- Combine with price action analysis