How to Draw and Use Fibonacci Retracement Levels

I am mostly just going to go through how to identify the Fibonacci retracements over charts in Forex, how to use them to your advantage and how it makes it easy to define some support and resistance levels in the market. Fibonacci tools are widely used, even by the best traders out there.

The important Fib levels for me are 38.2% and 61.8% because I normally look to them to see reversals or changes in trend, but there are many levels where you can normally expect some support or resistance to come into the market. These levels are great to watch for entries and exits. Normally, it has been noted that when the price of a currency pair reaches the 38.2% fib level in an uptrend and breaks through, is a continuation of the uptrend, but if price gets rejected at that level, it usually signals a heavy reversal. The same can be said of a currency pair in downtrend when it reaches a 38.2% and breaks through, it is a sign of continuation of the downtrend, but if price gets rejected, it usually signals a heavy reversal.

You can experiment with these Fibonacci levels and make notes accordingly to see different reactions that take place at these levels day to day in the Forex market.

Fibonacci retracement levels

Let’s get started! You can draw with the Fibonacci retracement tool and the Trend-based Fib Extension. It’s available on your metatrader 4 and is also available at Tradingview.com. All of the charts shown here were made there. The Fibonacci retracement tool The Fibonacci retracement tool is extended from swing highs to swing lows for a down trend, and swing lows to swing highs for an uptrend. They can be used on all charts but as it goes for indicators the higher the time-frame the stronger the level of support or resistance the fib level will be. For pairs that have been in uptrend fib1 For pairs in downtrend fib2   See how simple and useful Fibonacci retracements were. Lets look at another tool. The trend based fib extension tool The trend based fib extension tool is used in a different manner, as shown in the images below: For a pair in uptrend trendbasedfib1 For a pair in downtrend trendbasedfib2 Okay, so you’ve got your chart all set up now and you’re wondering what do I do with these? well let’s take a look at one of these charts. Fibonacci retracement levelsAs you can see above, when the market reaches near these Fibonacci levels it usually faces resistance or support, they can be key levels of entries and also key levels for exits to keep in mind. So did you get all of this? Which one of these methods do you find more useful or have used? This can be a great tool to add to your trading arsenal. Practice and you will be able to identify these Fibonacci levels. They are very useful tools for any trader to have, even in stocks and other financial markets.

Learning FX

The idea is to basically help out others trade and understand the foreign exchange market with more ease. My articles and trade ideas are based on my experience and are for educational purposes only. You can follow our updates on twitter

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2 Responses

  1. June 30, 2014

    […] will find out about things like risk reward and money management, placing your stop losses and how to draw up fibonacci retracements plus you’ll find a lot more. There are new trade ideas here often too, so you might want to […]

  2. July 12, 2014

    […] Drawing and using fibonacci retracement levels – Learning FX […]

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