Fibonacci retracement and how to apply it in trading

Let’s take a closer look at each of these strategies with examples. You can build a grid not only in a line chart, but in a candlestick fibonacci indicator chart as well. The extreme points of the shadows will be the extrema. It can act as the first correction line for a new trend.

fibonacci retracement strategy

To conclude, GoodCrypto can be the perfect companion in the extremely demanding world of crypto trading. Access the futures market and trade with leverage on the most popular crypto exchanges such as Bitmex, ByBit, Binance, and KuCoin. Automate your trades without having to code your own trading bot. Consult real-time prices and charts across all popular exchanges. To have the Fibonacci retracement explained, we can divide each number by the next one and obtain a ratio of 68.1%.

Mastering Fibonacci Retracement Levels

If it’s an uptrend, you want to start with the swing low and drag your Fibonacci level all the way up to the swing high. If it’s a downtrend, you start with the swing high and drag your cursor all the way down to the swing low. You can also read the strategy on how to use currency strength for trading success. In both scenarios, it is useful to wait for a candlestick pattern to confirm that the price is bouncing at the resistance spot or pushing through the support level. This helpful tactic has a high rate of ensuring a decent entry at the right time. As a trader, when you see the price coming into a Fibonacci support area, the biggest clue you can look to is the volume to see if that support will hold.

fibonacci retracement strategy

Fibonacci retracement levels such as 61.8%, 38.2%, and 23.6% act as a potential level upto which a stock can correct. While we already covered Fibonacci retracement strategy earlier, we haven’t yet touched upon the Fibonacci retracement vs extension notion. Fibonacci extensions are very useful for determining exit positions when the price breaks out of the trend, beyond 100%. To obtain the ratios for Fibonacci extension vs retracement, we simply add the usual ratios to 100%, which gives us 1.236, 1.382, 1.5, 1.618, and so forth. Margin trading involves a high level of risk and is not suitable for all investors. Forex and CFDs are highly leveraged products, which means both gains and losses are magnified.

What Are The Different Fibonacci Trading Tools And How To Apply Them

You need to be 18 years old or legal age as determined by the laws of the country where you live in order to become our client. A protective order which enables closing a losing position on a predefined level. The most important thing in making money is not letting your losses get out of hand. Later on, around July 14, the market resumed its upward move and eventually broke through the swing high. Click on the Swing Low and drag the cursor to the most recent Swing High. Then, for downtrends, click on the Swing High and drag the cursor to the most recent Swing Low.

  • When Temitope is not writing, he takes his time to learn new things and also loves to visit new places.
  • Fibonacci retracement can become even more powerful when used in conjunction with other indicators or technical signals.
  • This could help traders make more informed decisions.
  • Trading strategies that are based primarily on the use of Fibonacci retracement levels .
  • Fibonacci trading tools, however, tend to suffer from the same problems as other universal trading strategies, such as theElliott Wave theory.
  • Its breakout means that there will be no continuation of the main trend.

For instance, if GE stock is at $21 and falls to $20.62, some Fibonacci traders may see the 38 cent drop as a good sign to short the stock. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.


When Temitope is not writing, he takes his time to learn new things and also loves to visit new places. We drew the Fibonacci line upward in the example above. In the case of a downtrend, we would draw the line downward.

fibonacci retracement strategy

We mention this a little later in the article when it comes to trading during lunch, but this method works really during any time of the day. We saved this one for last because it’s our favorite go-to with Fibonacci. Volume is honestly the one technical indicator even fundamentalists are aware of. So, to mitigate this risk, you will need to use the same mitigation tactics as mentioned for pullback trades. You want to find a stock clearing this extension level with volume. Breakout trades have one of the highest failure rates in trading.

How to calculate Fibonacci support and resistance

If you use the Fibonacci retracement and extension as “tools” to complement your trading method, you’ll start to take advantage of them rather than depend on them. There’s always a new “golden ratio” for the price to fall into. The Bearish Gartley PatternThe Bearish Gartley pattern was introduced in 1935, by H.M. The pattern helps Forex traders in identifying higher probabilities of selling opportunities. The ABCD patternOne of the most classic chart patterns, the Forex ABCD pattern represents the perfect harmony between price and time.

fibonacci retracement strategy

You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. The charting software automagically calculates and shows you the retracement levels. Fibonacci retracement can become even more powerful when used in conjunction with other indicators or technical signals.

Price Rate Of Change Indicator – Definition, Formula and the ROC Trading Strategies

Fibonacci retracement levels are horizontal lines that indicate where price reversals are likely to occur and are part of technical analysis. They are based around the Fibonacci sequence, a pattern of numbers, each representing the sum of the previous two. A Fibonnaci trading strategy would incorporate these levels to analyse price behaviour.

Step #1 Find a Strong Down Trend/ Uptrend that is Forming

The one difference is that you are exposed to more risk because the stock could have a deeper retracement since you are buying at the peak or selling at the low. If that is 5 minutes or one hour, this now becomes your time stop. If there is only a 15% chance you will walk away a winner, just exit the trade with a predetermined allowable loss percentage or right at the market. If you are day trading, you will want to identify this setup on a 5-minute chart 20 to 30 minutes after the market opens.