Fibonacci retracements are a tool used in financial markets to find points of support and resistance on a price chart. These levels are found by first pinpointing a high and low of a assets original price move.
Retracements denote the percentage price rebounds retraces from these extreme points on the graph. Fibonacci retracements of Visually these points are represented on the graph by horizontal lines denoting support and resistance levels. Traders may use these lines in a variety of ways. Traditionally, traders begin to look for price to move from these levels back into the direction of the initial trend. Fibonacci retracement levels can be found on a variety of charts and time frames. As well, retracement levels can be used by trend traders or breakout traders.
Trend traders often use Fibonacci retracements in conjuncture with other forms of technical analysis such as trend lines and oscillators for timing market entries. The Chart below demonstrates how a Fibonacci retracement may match up with a strong trend line. As price rallies to the The following setup is an example of trading with the trend. As you continue to trade markets, you will notice that price rarely moves in one direction and retracements may take time to develop.
However, knowledge of Fibonacci Retracements is a great way for the patient trader to enter in with longer term market movements. Using Trend Lines as Support and Resistance. Never Trade without a Protective Stop.
Walker England contributes to the Instructor Trading Tips articles. To receive more timely notifications on his reports, email instructor dailyfx. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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