Fibonacci Retracement Analysis
Fibonacci Retracement Analysis is a very popular forex trading technical analysis & tool. It used by so many forex traders generaly to calculate the targets for the possibility of the entry and exit points. It also can be used in determining the possibility of support & resistance levels. The Fibonacci retracement analysis is based on from the key of numbers which is identified by the famous mathematician, his name is Leonardo Fibonacci, found in the 13th century.
Fibonacci Retracement Levels
In an upward trend, the basic idea is to “ride” on that trend. The problem is the upward trend is not always a straight upward line, but usually it is in the form of upward zigzag lines. Therefore, a forex trader needs to take the right position )lowest point) in order to take the maximum profit.
In order to get a retracement level, you have to create an upward line started from the lowest point/price to the highest point/price on the chart. When a line is formed, the software will automatically draw some lines which represend the ration of Fibonacci retracement level.
You can learn Fibonacci Retracement Analysis you can watch the following video. Cut and paste the link below:
http://www.babypips.com/forex-school/video/fibonacci-retracement.html
Or you can use bookmark menu – F4 capital – fibol
The following is the picture of hourly chard of USD/JPY currency. We will draw a Fibonacci line from the price 110.78 (date 12/07/05) to 112.27 (date 03/07/05). Then we will get a retracement level on the price 111.92 (0.236), 111.70 (0.382), 111.52 (0.500), and 111.35 (0.618).
After we know the value of retracement level, we will place a limit order buy on those value:
(we will upload the picture soon)
And then you notice the next price movement turns into the level 0.236 and continues to level 0.382, but it does not pass the level of 0.500. Level 0.382 is the best buy position.
(we will upload the picture soon)
You will see a Fibonacci retracement in a downward trend.
The forex charts is set on 1 hour time frame with EUR/USD.
The fibo line is dragged downward from 1.3278 (date 28/02/05) to 1.3169 (date 28/02/05).
Then, we will get a retracement level on 1.3236 (0.618), 1.3224 (0.500), 1.3211 (0.382), and 1.3195 (0.236).
(we will upload the picture soon)
Let’s see what happensnext. The forex market trading is trying to pull back to the level 0.382 (after passing level 0.618 and 0.500) on the price 1.3227.
After reaching that level, the price goes downward again.
(we will upload the picture soon)
Another example is a chart with 1 hour time frame, with GBP/USD. A fibo line is dragged downward from the price 1.7438 (date 26/07/05) to the price 1.7336 (date 27/07/05). We will get a retracement level on 1.7399 (0.618), 1.7387 (0.500), 1.7375 (0.382), and 1.7360 (0.236).
A pull back happens and passing 0.500, then coming back again. This happens for several times. You will think that this position is the best to place a limit order sell on 1.7387 (0.500).
(we will upload the picture soon)
If you take that position, you will lose a transaction. Look what happens next, the price keeps moving upward.
(we will upload the picture soon)
Seeing from the above example, the market is usually experiencing a pullback, and searching for support position (in an upward trend) or a resistance position (in a downward trend).
There are some problems that you need to consider:
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In an upward trend, the basic idea is to “ride” on that trend. The problem is the upward trend is not always a straight upward line, but usually it is in the form of upward zigzag lines. Therefore, a forex trader needs to take the right position )lowest point) in order to take the maximum profit.
In order to get a retracement level, you have to create an upward line started from the lowest point/price to the highest point/price on the chart. When a line is formed, the software will automatically draw some lines which represend the ration of Fibonacci retracement level.
You can learn Fibonacci Retracement Analysis you can watch the following video. Cut and paste the link below:
http://www.babypips.com/forex-school/video/fibonacci-retracement.html
Or you can use bookmark menu – F4 capital – fibol
The following is the picture of hourly chard of USD/JPY currency. We will draw a Fibonacci line from the price 110.78 (date 12/07/05) to 112.27 (date 03/07/05). Then we will get a retracement level on the price 111.92 (0.236), 111.70 (0.382), 111.52 (0.500), and 111.35 (0.618).
After we know the value of retracement level, we will place a limit order buy on those value:
(we will upload the picture soon)
And then you notice the next price movement turns into the level 0.236 and continues to level 0.382, but it does not pass the level of 0.500. Level 0.382 is the best buy position.
(we will upload the picture soon)
You will see a Fibonacci retracement in a downward trend.
The forex charts is set on 1 hour time frame with EUR/USD.
The fibo line is dragged downward from 1.3278 (date 28/02/05) to 1.3169 (date 28/02/05).
Then, we will get a retracement level on 1.3236 (0.618), 1.3224 (0.500), 1.3211 (0.382), and 1.3195 (0.236).
(we will upload the picture soon)
Let’s see what happensnext. The forex market trading is trying to pull back to the level 0.382 (after passing level 0.618 and 0.500) on the price 1.3227.
After reaching that level, the price goes downward again.
(we will upload the picture soon)
Another example is a chart with 1 hour time frame, with GBP/USD. A fibo line is dragged downward from the price 1.7438 (date 26/07/05) to the price 1.7336 (date 27/07/05). We will get a retracement level on 1.7399 (0.618), 1.7387 (0.500), 1.7375 (0.382), and 1.7360 (0.236).
A pull back happens and passing 0.500, then coming back again. This happens for several times. You will think that this position is the best to place a limit order sell on 1.7387 (0.500).
(we will upload the picture soon)
If you take that position, you will lose a transaction. Look what happens next, the price keeps moving upward.
(we will upload the picture soon)
Seeing from the above example, the market is usually experiencing a pullback, and searching for support position (in an upward trend) or a resistance position (in a downward trend).
There are some problems that you need to consider:
- You cannot predict on what level the price will pullback. Is it on level 0.236 or 0.382, or even 0.618. You cannot make an exact pattern.
- A forex market trading can follow a fibo rule (as in the first 2 examples), but it may also not follow the fibo rule. A forex market trading is possible to reach certain level and then pullback to the earlier trend, but a forex market trading can also act the opposite where it is experiencing a pullback and it continues. Therefore, it is very wise to use the stop loss, and determine the risk in every transaction.
- Determining the fibo line since the beginning can be very subjective. If the time frame is different, the result will also be different.
Thank you for visiting our blog Learn Forex Trade ..
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