Written by Robert McKinley

Review of Fibonacci Retracement

Fibonacci Retracement Levels are 0.236, 0.382, 0.500, 0.618, 0.764

Depending on the nature and direction of the underlying trend, Fibonacci Retracement can be used to:

• Initiate a new trade
• Add to an existing trade

Keep in mind that when a currency is overbought or oversold, the expectation is that a correction will develop and that it is likely to stop at one of the Fibonacci retracement levels. This is when low risk/high reward trading opportunities often appear.

In order to apply Fibonacci levels to your charts, you’ll need to identify Swing High and Swing Low points.

You must identify “Swing High” and “Swing Low” points before you can apply Fibonacci retracement levels.

• A Swing High can be identified by a candlestick that has at least two lower highs on both sides of it.
• A Swing Low can be identified by a candlestick that has at least two higher lows on both sides of it.

More than one retracement level can develop.

It is always a good practice to monitor other greater time-period charts to identify these retracement levels and factor any “significant support or resistance areas” into your analysis. See the lesson Fibonacci Retracements for more detailed information on this.

Seek additional confirmation

It is always a good practice to seek confirmation of support and resistance levels using other technical analysis tools in order to better judge whether currency prices will reverse at any given level. For example, if you see a reversal candlestick pattern along with some other similar indication of an impending reversal, the greater is the possibility that a correction (reversal) will occur. To review the use of other tools, see the lesson on Support and Resistance.

The next lesson is Moving Averages.