Fibonacci Retracement

The idea is that there is a higher chance a security’s price will bounce from the Fibonacci level back in the direction of the initial trend. The Fibonacci sequence and golden ratio appear frequently in nature, biology, architecture and fine art.

As a general rule, the more confirming factors, the stronger the trade signal. Fibonacci retracement lines can be created when you divide the vertical distance between the high and low points by the key Fibonacci ratios. Horizontal lines are drawn on the trading chart​​ at the 23.6%, 38.2% and 61.8% retracement levels.

How to use the Fibonacci retracement tool

The retracement levels are a powerful tool that can be applied to all timeframes, including day trading​ and long-term investing. Fibonacci numbers also play a crucial role in the Elliott Wave​ principle, a technical analysis tool used to identify market cycles. The tool can be used across many different asset classes, such as foreign exchange, shares, commodities and indices.

How do you apply Fibonacci retracement levels in a chart?

As one of the most common technical trading strategies, a trader could use a Fibonacci retracement level to indicate where they would enter a trade. For instance, a trader notices that after significant momentum, a stock has declined 38.2%. As the stock begins to face an upward trend, they decide to enter the trade. Because the stock reached a Fibonacci level, it is deemed a good time to buy, with the trader speculating that the stock will then retrace, or recover, its recent losses.

Technical analysis is the analysis of financial markets from the point of view of past data. In other words, technical analysis aims to prescribe in which direction the price of a given asset is more likely to move given the way this asset trades now and has traded in the past. The support levels obtained through the use of Fibonacci retracement levels proved accurate in the analysis of silver price movements. Fibonacci retracement levels for gold have proven very valuable many times as well. That’s cool, but I still don’t see the connection between that sequence and the financial markets, let alone those retracement levels. To use the Fibonacci retracement tool well, you should mark the key levels well. In most cases, the price will always find resistance when it hits the noted retracement levels.

Best Fibonacci trading strategies

You can see that you know exactly where are the major swing highs and major swing lows which are crucially important to use when drawing Fibonacci Retracements . Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. Will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Fibonacci retracement is a method of technical analysis that is based on the Fibonacci number sequence.

Yes, there are times when your Fibonacci Retracement becomes invalid. One of the most common scenarios of this is when price makes a lower-low . The trendline can deviate from price structure by a bit, but most of it should follow price structure. Here’s a video interview of me on how I’m able to trade full-time and run an award-winning research firm.

Weekly Trader’s Outlook

First, you need to look at the chart and identify key levels. Ideally, you want to look at the highest and lowest swings. The asset’s current price should never be the highest or lowest points.

Don’t fall into the trap of assuming that just because the price reached a Fibonacci level the market will automatically reverse. Here’s how you can scan for the best undervalued stocks every day with Scanz. To find the 61.8% ratio, all you have to do is divide each number in the Fib sequence by the one that follows it. Do this along the chain, and you’ll quickly spot that it comes out at roughly 0.618 each time – particularly from 21 ÷ 34 onwards. Second, you should select the Fibonacci retracement tool as mentioned above. Finally, you should join the highest and lowest points, as shown below.