Using Fibonacci Retracement Levels To begin with, who is/was Leonardo Fibonacci?. Leonardo was an Italian mathematician, and way back in the middle ages, he discovered the Fibonacci sequence. The Fibonacci sequence is derived by taking two numbers and adding them to form the next number; 0, 1, 1, 2, 3, 5, 8, 13 … Then if you divide the numbers by each consecutive one, you arrive at the popular Fibonacci ratios, as used in FOREX trading i.e. .236, .50, .382, .618, etc.

How are Fibonacci retracement levels used in FOREX? Do they have any advantages? How can you incorporate Fibonacci studies into your own trading?

We use these ratios to define levels of resistance and support in the markets. Many traders use these ratios to trade billions of dollars every day, so you should use them too. Since the middle ages, Fibonacci numbers and ratios have been applied to many fields, and not to trading too. Apply these studies to your charts, you will be amazed at the accuracy.

What distinguishes Fibonacci studies from most indicators, is that these tools are used to predict future market turns. Before a chart reaches a certain point, it can be determined as a probable support or resistance area. This is a powerful tool for any trader. A popular Fibonacci ratio is the 0.618 level, commonly called “The Golden Ratio”. FOREX charts are particularly responsive to Fibonacci Retracement levels. Prices move up and down making peaks and valleys, forming support and resistance. You will find many of these support and resistance levels are at the common .618 level.

Fibonacci Retracement Levels for Trading

Use the Fibonacci tools in your trading software to find these levels, then watch how the market reacts to them. Consider entering short at resistance retracement levels, and long at support retracement levels. Study past charts for a while to gain some experience at this before risking your capital. There are advanced techniques that will improve your odds. Look for video seminars by “FibMaster” Neal Hughes to find these advanced techniques.

Fibonacci retracements are an important tool for traders and investors. They allow traders to pin-point reversal points on a price chart. Any price chart shows that trading will invariable correct, or retrace a percentage of the prior movement before reversing again and continuing in the direction of the original move.

If you review your charts, you will agree that retracement percentages seem to follow Fibonacci retracement patterns. Fibonacci levels can dramatically improve the trader/investor’s ability to benefit from market swings.

Projecting probable Fibonacci Retracement levels into the future with basic Fibonacci studies it easy. Finding the stronger or weaker levels is more advanced. Making intelligent decisions about when to enter and when to exit is what makes the difference between a trader and an amateur. Knowledge is key, and experience is vital!

Further Study:

Article: Fibonacci Retracement

Video: Fibonacci Retracement Levels

Day Trading Fibonacci Levels

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