Fibonacci Retracement levels

Fibonacci levels are applied by many forex traders to determine the size of the retracement. Although I would be able to write several pages on this subject, the main important thing for you is to know how to be able to employ this tool within the framework of the OFS Trading System and to know the reason why Fibonacci retracement levels serve as support and resistance levels and consequently are important when it’s about the determination of the price reaction area.

An Italian expert, called Leonard Fibonacci, made a very miraculous discovery which involves that a series of numbers produced a ratio, which described the natural qualities of objects in the universe. It would go beyond our target to discuss the whole theory at this stage, but the point is that these ratio of numbers is also applying to forex.

The most important Fibonacci Retracement Levels

In case of forex it’s especially about the Fibonacci retracement levels 38,2%, 50% and 61,8%. These percentages indicate up to which level the price is going to retrace from a full swing before going back into the direction of the trend.

Although the Fibonacci retracement levels 38,2%, 50% en 61,8% themselves also frequently serve as support or resistance levels, it’s particularly important that the price is retracing somewhere in the area between the 38,2% and 61,8% Fibonacci retracement levels.

How do you draw the Fibonacci Retracement Levels

These Fibonacci retracement levels are being determined as follows:

  • Uptrend: Measure from the swing low up to the swing high.
  • Downtrend: Measure from the swing high up to the swing low.

Every broker’s software at least contains the Fibonacci tool and normally speaking you’ll find this tool among the technical indicators or by means of a separate Fibonacci icon.

In order to draw the Fibonacci retracement levels, you therefore click in case of an uptrend with your mouse on point 1 at the swing low and you extend the drawing up to point 2 at the swing high. The Fibonacci retracement levels will then appear automatically on your forex chart, as you can see on the below shown chart:

fibonacci retracement levels

A self-fulfilling prophecy

Whether you agree with this theory or you don’t, every forex trader is paying close attention to the most important Fibonacci retracement levels and by doing so it’s going to become a self-fulfilling prophecy. It would be a waste not using this tool as the Fibonacci retracement levels are very reliable support and resistance levels and consequently are making up an important item to determine where price-action is possibly going to take place.

Conclusion:

Although the Fibonacci Retracement Levels are not part of the basic version of the OFS Trading System, these price levels are commonly being used in the extensive version of the OFS Trading System as a support to determine the price reaction area.

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Related Posts:

  1. Support and Resistance Levels
  2. Forex Market Dynamics: Uptrend, Downtrend and Range

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