Learn Fibonacci Retracement Tool
☸️WHAT ARE FIB RETRACEMENT LEVELS
Fibonacci retracement levels are horizontal lines that indicate the possible support and resistance levels where price could potentially reverse direction. The first thing you should know about the Fibonacci tool is that it works best when the market is trending.
The idea is to go long on a retracement at a Fibonacci support level when the market is trending UP.
And to go short on a retracement at a Fibonacci resistance level when the market is trending DOWN.
Fibonacci retracement levels are considered a predictive technical indicator since they attempt to identify where price may be in the future.
☸️FINDING FIB RETRACEMENT LEVELS
In order to find these Fibonacci retracement levels, you have to find the recent significant Swing Highs and Swings Lows.
Then, for downtrends, click on the Swing High and drag the cursor to the most recent Swing Low.
For uptrends, do the opposite. Click on the Swing Low and drag the cursor to the most recent Swing High.
☸️HOW TO USE
Once you’ve done that, you will see the following levels appear: 23.6% , 38.2%, 50.0%, 61.8% and 76.4%. (The 50% one is not technically a Fib level but its still used by everyone)The idea is that the price will make a correction that will reverse at one of these levels. So all we need to do is watch the price action near these levels and look for the reversal patterns, like triple bottom, head and shoulders, narrowing wedge breakouts, etc…
Once the we see a confluence of the Fib level and the reversal pattern, we can just wait for the confirmation breakout and enter the trade on the pullback. EASY!👻
☸️WHY IT WORKS
Because of all the people who use the Fibonacci tool, those levels become self-fulfilling support and resistance levels.
If enough market participants believe that a retracement will occur near a Fibonacci retracement level and are waiting to open a position when the price reaches that level, then all those pending orders will impact the market price.
☸️IMPORANT REMINDER
One thing you should take note of is that price won’t always bounce from these levels. They should be looked at as areas of interest so as I wrote above, one can’t simply trade off these levels, but needs to employ reversal patterns with confirmation to increase the probability rate of one’s calls.
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