How do I use Fibonacci Retracements to create a forex trading

  • Free Annual Reports
  • Register
  • Sign in

Sign in

Register

How do I use Fibonacci Retracements to create a forex trading strategy?

By Investopedia

AAA | 

A:

Forex traders use Fibonacci retracements to pinpoint where to place orders for market entry, for taking profits and for stop-loss orders. Fibonacci levels are commonly used in forex trading to identify and trade off of support and resistance levels.

Fibonacci retracements identify key levels of support and resistance. Fibonacci levels are commonly calculated after a market has made a large move either up or down and seems to have flattened out at a certain price level. Traders plot the key Fibonacci retracement levels of 38.2%, 50% and 61.8% by drawing horizontal lines across a chart at those price levels to identify areas where the market may retrace to before resuming the overall trend formed by the initial large price move. The Fibonacci levels are considered especially important when a market has approached or reached a major price support or resistance level.

The 50% level is not actually part of the Fibonacci number sequence, but is included due to the widespread experience in trading of a market retracing about half a major move before resuming and continuing its trend.

The strategies forex traders employ using Fibonacci levels include:

o Buying near the 38.2% retracement level with a stop-loss order placed a little below the 50% level.

o Buying near the 50% level with a stop-loss order placed a little below the 61.8% level.

o When entering a sell position near the top of the large move, using the Fibonacci retracement levels as take profit targets.

o If the market retraces close to one of the Fibonacci levels and then resumes its prior move, using the higher Fibonacci levels of 161.8% and 261.8% to identify possible future support and resistance levels if the market moves beyond the high/low that was reached prior to the retracement.

TAGS:

Fibonacci
Forex Trading Strategies
Support And Resistance
Technical Analysis

License Content
Order Reprints

RELATED FAQS

  • What is the difference between technical analysis and fundamental analysis?

    Learn about technical analysis and fundamental analysis, the difference between the two methodologies and how they are used …

  • How are Tweezer patterns interpreted by analysts and traders?

    Understand the basics of the tweezer candlestick pattern and how analysts and traders interpret this common but unreliable …

  • What is the difference between a drawdown in banking and a drawdown in trading?

    Understand the two completely different meanings of the term ''drawdown'' as it is applied within the contexts of trading …

  • How can the exponential moving average be used in swing trading?

    Learn about exponential moving averages and how to use the exponential moving average crossover for swing trading to signal …

  • RELATED TERMS

  • Fintech

    Fintech is a portmanteau of financial technology that describes …

  • Indicator

    Indicators are statistics used to measure current conditions …

  • Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis …

  • Forex Spread Betting

    A category of spread betting that involves taking a bet on the …

  • Mass Index

    A form of technical analysis that looks at the range between …

  • Money Flow Index – MFI

    A momentum indicator that uses a stock’s price and volume to …

  • You May Also Like

    Marketplace

    Related Articles

  • Charts & Patterns

    Why These May Be the Top 4 Growth Stocks …

    By Dan Moskowitz

  • Chart Advisor

    Interested in Growth Stocks? See These …

    By Casey Murphy

  • Chart Advisor

    Watch Out For Falling Copper Prices

    By Casey Murphy

  • Chart Advisor

    Watch for Bullish MACD Crossovers in …

    By Cory Mitchell

  • Trading Strategies

    Bucking The Trend With Pattern Failure …

    By Alan Farley

  • Trading Center

    Subscribe to our Free Newsletters!

    Learn More »

    TOP

    • Dictionary:
    • #
    • a
    • b
    • c
    • d
    • e
    • f
    • g
    • h
    • i
    • j
    • k
    • l
    • m
    • n
    • o
    • p
    • q
    • r
    • s
    • t
    • u
    • v
    • w
    • x
    • y
    • z
    • Content Library
    • Articles
    • Terms
    • Videos
    • Tutorials
    • Slideshows
    • FAQs
    • Calculators
    • Chart Advisor
    • Stock Analysis
    • Free Annual Reports
    • Stock Simulator
    • FXtrader
    • Exam Prep Quizzer
    • Net Worth Calculator
    • Connect With Investopedia
    • Work With Investopedia
    • License Content
    • Advertise With Us
    • Write For Us
    • Email Deployment
    • Contact Us
    • Careers
    • INV Sweden

    © 2015, Investopedia, LLC.

    All Rights Reserved
    Terms Of Use
    Privacy Policy

    Partners:

    How do I use Fibonacci Retracements to create a forex trading …

    Laisser un commentaire