What is Fibonacci Retracement Trading?

Fibonacci retracement is a technical analysis method. It is used to identify potential price levels where a market may experience a pause, pullback, or reversal after a significant price movement. As per general market understanding, some commonly used Fibonacci retracement levels are:

• 23.6%
• 38.2%
• 50%*
• 61.8%, and
• 78.6%

*The 50% level is not a Fibonacci ratio mathematically, but traders commonly include it in Fibonacci retracement analysis.

How to Use Fibonacci in Forex?

Most traders do Fibonacci retracement trading by first identifying a significant swing high and swing low and then applying Fibonacci levels such as 23.6%, 38.2%, 50%, 61.8%, and 78.6%. These levels mark potential areas where a price pullback may pause or reverse.

• In an uptrend, traders usually draw Fibonacci levels from the swing low to the swing high.
• In a downtrend, the direction is reversed. 

Traders then monitor price behaviour around these levels and may combine them with support, resistance, or other technical indicators before making decisions.

Note: Fibonacci levels do not predict that the price will reverse at a particular level. They may only identify price areas that traders potentially monitor alongside other technical or market information.

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