How to trade with Fibonacci Retracement

The Fibonacci tool is very popular amongst traders and for good reasons. The Fibonacci is a universal trading concept that can be applied to all timeframes and markets. There are also countless Fibonacci tools from spirals, retracements, Fib time zones, Fib speed resistance to extension.

In this article, I will explain how to correctly draw a Fibonacci sequence and how to use the Fibonacci extensions for your trading.

The Fibonacci retracement tool plots percentage retracement lines based upon the mathematical relationship within the Fibonacci sequence. These retracement levels provide support and resistance levels that can be used to target price objectives.

Fibonacci Retracements are displayed by first drawing a trend line between two extreme points. A series of six horizontal lines are drawn intersecting the trend line at the Fibonacci levels of 0.0%, 23.6%, 38.2%, 50%, 61.8%, and 100%.

The first thing you should know about the Fibonacci tool is that it works best when the market is trending.

The theory is that after price begins a new trend direction, the price will retrace or return partway back to a previous price level before resuming in the direction of its trend.

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.

Finding Fibonacci 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 draw Fibonacci retracement levels

Drawing Fibonacci retracement levels is a simple three-step process:

In an uptrend:

• Step 1 – Identify the direction of the market: uptrend
• Step 2 – Attach the Fibonacci retracement tool on the bottom and drag it to the right, all the way to the top
• Step 3 – Monitor the three potential support levels: 0.236, 0.382 and 0.618

In a downtrend:

• Step 1 – Identify the direction of the market: downtrend
• Step 2 – Attach the Fibonacci retracement tool on the top and drag it to the right, all the way to the bottom
• Step 3 – Monitor the three potential resistance levels: 0.236, 0.382 and 0.618