There is a plethora of information all over the internet regarding the history, use, and study of Fibonacci within the realms of trading. We assume that you already know the history and the idea behind the concept of Fibonacci studies. If you don’t, see the basics course. It is our aim here to simply show you how to apply Fibonacci correctly onto your charts and as part of a wider confluence of support and resistance in order to make money from it.
There are two main studies that we and most other professional Forex traders use:
The main retracement and extension levels that traders use are laid out below:
Fibonacci Retracement Levels: 23.6, 38.2, 50, 61.8, 78.6
Fibonacci Extension Levels: 0, 38.2, 61.8, 1.000, 1.27, 1.382, 1.618
Traders use the Fibonacci retracement levels as support and resistance levels from which to enter the market. The fact that so many traders are looking to Fibonacci retracement levels as levels of support or resistance means that they are more likely to actually provide this expected strength.
Traders use the Fibonacci extension levels as profit taking levels. Again, since so many traders are watching these levels and placing buy and sell orders to take profits this tool usually works due to self-fulfilling expectations.
You won’t need to worry about calculating these Fibonacci levels yourself because almost every charting package will include the facility to plot the levels onto your chart without too much thinking being required. All you need to know regarding simply plotting the Fibonacci onto your chart is where the significant swing highs and lows are on your chart.
A Swing High is a candlestick with at least two lower highs on both the left and right of itself.
A Swing Low is a candlestick with at least two higher lows on both the left and right of itself.
The subject of swing highs and swing lows is covered in more detail in the market flow section where you will also find visual chart based examples.
Next: Plotting Fibonacci