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You sure have heard of Fibonacci levels in Forex. You do not have to know why markets react on these Fibonacci levels nor what Fibonacci sequence is in order to apply it in your trading. If you wish to learn more about these matters type “Fibonacci sequence” in your favorite search engine.

Every charting package offers the option to automatically calculate Fibonacci levels.
These levels seem to act as support or resistance levels. Market reacts when approaching these levels and either bounces or stops for a while (consolidates) and breaks them if there is enough steam.

The most important Fibonacci retracements are 31,8%, 50% and 61,8%. In an uptrend you should use the starting point of the uptrend (the low) as the 100% point and the high point (where market starts reversing) as the 0.0% point. The opposite applies in a downtrend. (Look the figures below)

Market seems to bounce on these levels of Fibonacci retracements. But these retracements are not a Holy Grail. When market approaches a Fibonacci Level this does not automatically mean that it will reverse. Use Fibonacci retracements carefully and apply them with caution.

Below are the rules that you have to consider in order to validate a Fibonacci retracement.
 The longer the time value of the chart the more important the retracement as support or resistance.
 Fibonacci retracement is more valid when is at the same point with other resistance or support signals such as valid trendlines, candlestick reversal signals, 200 day simple moving average etc.
 Do not be trigger happy with your Fibonacci retracement. In real market environment market may test this retracement and have a false break (the closing value will be inside the Fibonacci retracement which validates the false break). Funds and smart money wait before minor trader’s stop losses just below retracement are triggered and then enter the market just below a major Fibonacci retracement. Think like a pro! Be calm like a cardio surgeon. Do not be hasty!

Fibonacci retracements in an uptrend

Fibonacci retracements in a downtrend

There are a lot of embedded Fibonacci Relationships in Forex market. The thorough study of these relationships may enhance a lot your trading profits. These patterns are price patterns which include special Fibonacci relationships. The proper use of these patterns, which are not widely known, could give you great trading potential.