Forex traders use Fibonacci levels to determine where to place orders to enter the market, taking profits and stop losses. Fibonacci levels are widely used in trade in the Forex market to identify and trade from support and resistance. After a significant price movement up or down, new levels of support and resistance are often at or near these trendlines.
What Fibonnacci Grids?
Fibonacci retracements identify key levels of support and resistance. Fibonacci levels is usually calculated after the market took a big step up or down and a relative stabilization at a certain level.
Traders plot the key Fibonacci retracement levels at 38.2%, 50% and 61.8 percent, drawing a horizontal line through the graph at these levels of prices, to identify areas where the market may retrace before returning to the General trend formed by the initial large price movement. The Fibonacci levels are considered critical when the market has approached or reached a major level of support or resistance.
50 cent is not part of the Fibonacci sequence, but is included due to the wide use in the trade, when the market retraces about half of the main motion before the resumption and continuation of the trend.
Forex strategy traders who use Fibonacci levels
- Buying near the 38.2% retracement level with a stop-loss placed just below the level of 50 percent.
- Purchase near 50 percent with a stop-loss placed just below the level of 61.8%.
- When entering a sell position near the top of the large move, using the Fibonacci retracement levels as profit.
- If the market retraces to one of the Fibonacci levels and then returns to the previous movement, using higher Fibonacci levels 161.8% and 261.8% to identify possible future levels of support and resistance, if the market moves beyond the high/low that has been made before correction.