WHAT ARE THE FIBONACCI LEVELS?
🔵 We are not going to focus on the Golden Ratio and the Fibonacci sequence in nature or around us. You can read about it in various books or on the Internet if you are interested. We will find out how these numbers can help in forex trading. Now, let's talk about Fibonacci retracement levels. Now let's get straight to the point.
Fibonacci retracement levels look like this:
0.236, 0.382, 0.500, 0.618, 0.764
The Fibonacci extension levels are as follows:
0, 0.382, 0.618, 1.000, 1.382, 1.618
And these are the extension levels used in forex to set orders like "take profit". In other words, according to them, the price often reaches these levels, which should be taken into account in the analysis. Let us agree that Fibonacci levels are an instrument for trend analysis and are not suitable for consolidation. The point is that when the trend is upward, Similarly, for a down trend and support. We find the lower swing levels, then the upper swing levels, and draw a grid between them.
🔵 Fibonacci in a downward trend
Let's act in the same way and draw the grid between the two candlestick patterns-swings, but downwards. The chart of EUR/USD, 4-hour timeframe. The assumption is that as the price rebounds upwards, it will hit one of the Fibonacci resistance levels, since the general trend is very strong downwards.
Let's see what happened next.
The pullback really came and the market slowed down below 0.382, an early hint of exhaustion of the bulls' forces. Finally, at 0.500 the bulls ran out of steam and the level worked as a resistance. And these two levels, 0.382 and 0.500, interact with each other. Their main purpose is as temporary support and resistance.
We all know about the resistance and support, so do not expect the price to bounce from these levels. No. These are, first of all, the zones of trader's interest. Therefore, the price at these levels likes to consolidate into micro-channels before it moves on.
As you well know, price can break both support and resistance. That means it will similarly break through Fibonacci levels. So, these levels are a guideline, but not an absolute guarantee of pullbacks and reversals. Sometimes levels are broken through, sometimes instead of 0.500 a bounce occurs from 0.618 and lots of other examples. Sometimes the price doesn't care about these levels. The price, as such, moves between levels, and some levels are more significant for it at a certain moment in time, and some are less significant for it.
So, in using Fibonacci levels, you will benefit from all the tools in your arsenal that we already know about. The tools we use to filter inputs from support and resistance levels, whether it's Fibonacci or conventional. Say, oscillators with their divergences, price action patterns and more. In fact, let's combine Fibonacci levels with support and resistance.
🔵 Fibonacci retracement with support and resistance levels
We have already learned that Fibonacci retracement levels are quite subjective. Like everything in technical analysis, we shouldn't just use them. In this case, we need a level enhancer. This is when ordinary support or resistance is well combined with Fibonacci retracement levels.
An uptrend, so many green candles. it's all very nice, but where to enter? Especially since the price clearly went with low volatility. We use the Fibo and let's add a mirror level, where resistance has become support. It can be seen very well. Notice how it combines with the 0.5 level.
Now we have to wait for the price to interact with this level. As you can see, the price really respected that level, it worked as support and did not let the price go further up. As you understand, support and resistance are, first of all, the zones of interest. The area that triggers the maximum reaction of the price. Not the least of the reasons is that everyone uses these levels. And, consequently, the more institutional traders apply Fibonacci levels, the more these levels influence price behavior. There is a direct correlation. This is why simple support and resistance levels also work.
Of course, there's no guarantee that these levels will bounce the price, but we don't need guarantees, because we don't know that they don't exist in trading, do we? We know very well. But here is the zone where the price should be watched closely Fibonacci levels are quite suitable for that.
🔵 Fibonacci levels and trendlines
Another way to apply Fibonacci levels is with another basic technical analysis tool. And what tool comes after support and resistance? That's right trendlines. Many traders use Fibonacci retracement levels exactly in an uptrend or downtrend, so combining them with trendlines makes confluence. Let's take a look at the next chart.
We should take a trade, if such a situation arises, let's say, when the price touches the trendline. However, let's add Fibonacci retracement levels and see what happens. And we will get a more accurate entry zone. Let's use two swing values and watch what happens. We are especially interested in the levels of 0.500 and 0.618.
Here we have it, the level 0.618 (61.8%) worked out as support, and it is right on the trendline. It's time to enter to further increase the trend. Two simple tools sometimes give equally simple results. Similarly, you can use the Fibonacci levels with horizontal support and resistance. In this case, Fibonacci will act as another way to filter entries at support and resistance levels.
✅ Conclusion
Keep in mind that Fibonacci levels should not be used alone, you will lose everything. They should be combined with other elements of technical analysis, such as indicators, trend lines, Price Action patterns, etc. They are auxiliary tools and you should always remember about it.
Fibonacci retracement levels look like this:
0.236, 0.382, 0.500, 0.618, 0.764
The Fibonacci extension levels are as follows:
0, 0.382, 0.618, 1.000, 1.382, 1.618
And these are the extension levels used in forex to set orders like "take profit". In other words, according to them, the price often reaches these levels, which should be taken into account in the analysis. Let us agree that Fibonacci levels are an instrument for trend analysis and are not suitable for consolidation. The point is that when the trend is upward, Similarly, for a down trend and support. We find the lower swing levels, then the upper swing levels, and draw a grid between them.
🔵 Fibonacci in a downward trend
Let's act in the same way and draw the grid between the two candlestick patterns-swings, but downwards. The chart of EUR/USD, 4-hour timeframe. The assumption is that as the price rebounds upwards, it will hit one of the Fibonacci resistance levels, since the general trend is very strong downwards.
Let's see what happened next.
The pullback really came and the market slowed down below 0.382, an early hint of exhaustion of the bulls' forces. Finally, at 0.500 the bulls ran out of steam and the level worked as a resistance. And these two levels, 0.382 and 0.500, interact with each other. Their main purpose is as temporary support and resistance.
We all know about the resistance and support, so do not expect the price to bounce from these levels. No. These are, first of all, the zones of trader's interest. Therefore, the price at these levels likes to consolidate into micro-channels before it moves on.
As you well know, price can break both support and resistance. That means it will similarly break through Fibonacci levels. So, these levels are a guideline, but not an absolute guarantee of pullbacks and reversals. Sometimes levels are broken through, sometimes instead of 0.500 a bounce occurs from 0.618 and lots of other examples. Sometimes the price doesn't care about these levels. The price, as such, moves between levels, and some levels are more significant for it at a certain moment in time, and some are less significant for it.
So, in using Fibonacci levels, you will benefit from all the tools in your arsenal that we already know about. The tools we use to filter inputs from support and resistance levels, whether it's Fibonacci or conventional. Say, oscillators with their divergences, price action patterns and more. In fact, let's combine Fibonacci levels with support and resistance.
🔵 Fibonacci retracement with support and resistance levels
We have already learned that Fibonacci retracement levels are quite subjective. Like everything in technical analysis, we shouldn't just use them. In this case, we need a level enhancer. This is when ordinary support or resistance is well combined with Fibonacci retracement levels.
An uptrend, so many green candles. it's all very nice, but where to enter? Especially since the price clearly went with low volatility. We use the Fibo and let's add a mirror level, where resistance has become support. It can be seen very well. Notice how it combines with the 0.5 level.
Now we have to wait for the price to interact with this level. As you can see, the price really respected that level, it worked as support and did not let the price go further up. As you understand, support and resistance are, first of all, the zones of interest. The area that triggers the maximum reaction of the price. Not the least of the reasons is that everyone uses these levels. And, consequently, the more institutional traders apply Fibonacci levels, the more these levels influence price behavior. There is a direct correlation. This is why simple support and resistance levels also work.
Of course, there's no guarantee that these levels will bounce the price, but we don't need guarantees, because we don't know that they don't exist in trading, do we? We know very well. But here is the zone where the price should be watched closely Fibonacci levels are quite suitable for that.
🔵 Fibonacci levels and trendlines
Another way to apply Fibonacci levels is with another basic technical analysis tool. And what tool comes after support and resistance? That's right trendlines. Many traders use Fibonacci retracement levels exactly in an uptrend or downtrend, so combining them with trendlines makes confluence. Let's take a look at the next chart.
We should take a trade, if such a situation arises, let's say, when the price touches the trendline. However, let's add Fibonacci retracement levels and see what happens. And we will get a more accurate entry zone. Let's use two swing values and watch what happens. We are especially interested in the levels of 0.500 and 0.618.
Here we have it, the level 0.618 (61.8%) worked out as support, and it is right on the trendline. It's time to enter to further increase the trend. Two simple tools sometimes give equally simple results. Similarly, you can use the Fibonacci levels with horizontal support and resistance. In this case, Fibonacci will act as another way to filter entries at support and resistance levels.
✅ Conclusion
Keep in mind that Fibonacci levels should not be used alone, you will lose everything. They should be combined with other elements of technical analysis, such as indicators, trend lines, Price Action patterns, etc. They are auxiliary tools and you should always remember about it.
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