Using Forex Fibonacci Retracement Levels & Extension Levels


Using Forex Fibonacci Retracement Levels & Extension Levels

Is the foreign exchange market currently trending? If it is, then, it’s the ideal moment to turn to the brilliant concept introduced by Italian mathematician, Leonardo Fibonacci. In other words, when clear price actions are in place, it’s time to use the Forex Fibonacci retracement levels and the Fibonacci extension levels to up your game.

Fibonacci Trading 101

The idea behind Fibonacci trading is to take advantage of the opportunity to buy while the market is trending upward. Alternately, it’s best to sell when the market is trending downward. Retracement levels (popular ones are 23.6, 50.0, and 76.4) and extension levels (popular ones are 38.2, 61.8, and 138.2) allow you to decide on a strategy and aim for profit targets, as well.

For the record, they’re like other tools: they may not work all the time. However, since they will grant you a higher probability of succeeding with your trades, using them is worth considering.

Japanese Candlesticks Are All You Need

Using Japanese candlesticks together with Fibonacci levels is sometimes called using fib sticks by traders and technical analysts. Since the method is known for indicating signals when Fibonacci levels will hold, it can assist you when anticipating a fib stick to form before entering a trade. If prices appear to be stalling, chances are, certain traders have already called dibs on placing orders.

Support & Resistance

Analyzing support and resistance levels, alongside Fibonacci levels, isn’t a new technique to certain traders. Especially if you’re a swing trader, it can help you, too, since it can provide an explanation of the right time to enter the forex market.

Observing Trend Lines

Since the right time to use Fibonacci retracement and extension levels is when the forex market is trending, analyzing trend lines on the side is a wise strategy. It follows that when a trend is moving upward or downward, relying on the levels is a way to secure your position. For example, if you look for a series of them, which lines up, you’ll have a cue which direction to take.

It’s Time to Stop

Leonardo Fibonacci, when creating the concept of Fibonacci levels, refused to ignore the fact that as important as the signal to enter the foreign exchange market is the knowledge of when to stop. Without plans of exiting, the odds are, an eventual loss is up ahead. Thus, the objective is to set a stop past the next Fibonacci level. Say, in the event that you went in at 61.8%, you should set a stop at 76.4%.