I'm back with another educational post after receiving a lot of requests and today's lesson is on how to use Fibonacci retracements.
I've used a recent market example with NZD/USD to break this down for you.
Let's get straight into the finer details before breaking down each section of the chart shown.
levels are amongst the invisible levels of within the market, providing objective price reference points.
Essentially where the flow of buying and selling is likely to change.
The main levels used are shown below.
- 0.382 (Indicating a strong trend)
Where can I find the tool?
You can find the tool in the chart section by going to your left sidebar, third section down and the icon is three horizontal lines.
Upon your first use of this tool, you will want to edit the settings and add in the three ratios stated above if they are not already there, make sure you tick the boxes to use them.
How do I use it?
To apply the tool on your charts click from high to low to measure the full price swing.
Draw in your tool from low to high depending on the market situation.
Breaking down the charts
If you're basing your trades off Fibonacci retracements they work at best in trending markets, but if it's used as a part of your strategy it can be effectively applied to any or most types of markets.
Now let's look at the chart for recent examples of price reversals using Fibonacci retracements.
If you look at the example on the left-hand side, I measured from high to low and price hit bang on the level.
Your question right now will be... How did you know it was going to reverse?
I personally go off the retracement level that is causing the most activity within the market. Have a look at price history and see what is happening at the particular level, is there a lot of stalling? Is it a key support or within the market? If so, price will more than likely reverse there in comparison to the other retracement levels.
To validate the reversal you will, of course, want to analyse price action, what are the telling you? Any signs of indecision or stalling at a certain level will help you make a solid choice whether to take the trade or not.
Now let's take a look at the right-hand side, this time I have two examples (again I measured from high to low).
You can see from the top example price pulled back to the 0.382 and 0.50 retracement levels not once or twice but three times before dropping.
Indicating a very strong resistance level!
The bottom example is a similar situation, price spiked up above the 0.50 retracement level (all closed below) before heading in the opposite direction.
To round of this educational post, I hope you found this extremely useful and you can now use Fibonacci retracements in your own trading.
I am available via private message for any questions you may have.
Here's to your success!!!
I'd just like to update you all on how well the 50% retracement level held (chart is shown below).
I believe the best way to learn is through experience, you can see first-hand exactly what happened in this situation and every angle of the trade has been broken down for you.
I'm currently up 90 pips from this position alone, congrats to those who took the trade!
In the chart above, I drew your FIBS and I already drew how I would have found that level. Many FIBS traders would have probably referred to the test at 7090 (on 21 MAR) as a failed breakout. This is simply not true. It was actually just a test of a segment leg start. Most traders tend to overgeneralize levels of support/resistance labeling misunderstood moves as false breaks. It doesn't really matter if you use FIBS or not. If they help you find important levels then so be it. What you and your followers may have noticed is that FIBS do not work at levels that have been tested, and they will not work if you are not drawing from the correct leg or leg segment being retraced. If you would like more examples to further discussion let me know. Happy trading.