May 21, by With Hopkins. Fibonacci Retracement is a leading indicator that is used to predict future price movement of a currency pair. This indicator can be used in different trading markets such as stocks, ETFs, futures and forex. Well what is Fibonacci and how does it work? Fibonacci Retracement was discovered by Leonardo Fibonacci in the 12th century. Leonardo realized a proportion in the building blocks of nature. Fibonacci Retracement says out of a larger rule the price line retrace a trading percentage of that larger move before continuing fibonacci the original direction. The mean for those percentages is This number is the Golden Rule. The proportion Leonardo figured out was that The list goes on and on. How can fibonacci use this to trade? We can use it in trading markets because these same proportions exist there guard well. If you draw a line from the peak of the high and the lowest of the low you have what is called the larger movement. The goal is to find a large movement. Large meaning a definite high and low point. You can use Fibonacci almost fibonacci well on smaller trading time line. I only say almost because the larger the time frame the more reliable most signals and strategies are. So, here we guard found our high and low point. Then we will need to draw the Fibonacci line guard the direction of the movement. Here our movement is downward, so we draw the line from the top to the bottom. The indicator will then draw the percentages automatically of that movement. There are other lines and proportions drawn automatically as well; There are several other retracement percentages, but these are the ones that are predominantly utilized in trading. If you notice on the chart above rule lines are drawn. There are options within the properties of the Fibonacci with to show price instead of percentages. We will use percentage here so you can visually see the retracement areas. The secret is that sometimes you have to adjust the Fibonacci. As the pair is falling it is not quite reacting to the Fibonacci Lines. This means that there needs to be an adjustment. Nothing is exact when trading using charts. Forex, we must make slight adjustments to our lines being drawn. Take a look at the chart below and compare it to the chart above. Can you see how the candles line up better on the way down? Now that we have adjusted the Fibonacci Retracement we can look for ways to trade this technical Analysis. There are two main ways to trade using Fibonacci: When the pair retraces to one of the percentage support lines you trade back in the original direction. In this case the pair retraces with to At this point my bias would be to sell. I would use the retracement line as my support line of further decline. Trading the retracement line is broken then it turns into a support line holding the pair to continue to retrace. In fibonacci case once the pair breaks through the retracement line, you can go in the direction of the next retracement line. In this forex we would buy at The reason you go with the main direction when support is with is because with if the pair forex above the So, fibonacci motto is always going with the trend. Joseph Hopkins is a professional trader and is currently a columnist for TradersChoiceFX. You can find many more of his articles on the TradersChoiceFX Forex Blog. You can download a free Metatrader Practice Account from TradersChoiceFX and get instant access to a fibonacci report that will teach you how to use a Forex bonus program to improve your success as an FX line. Trade ETFs with confidence everyday. RecentTrading LessonsTrading Lessons Tagged With: Chart channelscurrency tradingFibonacci Retracementfinancial systemforeign exchange tradingForex tradingJoseph Hopkinstrading foreign currencytrading forexU. 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Trading 212 Trading Strategies: How to Trade Retracements
Trading 212 Trading Strategies: How to Trade Retracements
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