• R.K. Capital Growth
• July 15, 2023
• 0 comments

How to Use Fibonacci Retracements for Trading

Definition and concept

Expontial Moving Averages (EMA)

Fibonacci retracement is a technical analysis tool that utilizes horizontal lines to indicate potential areas of support or resistance during a price correction. The idea is based on the Fibonacci sequence, a pattern in mathematics where each number equals the sum of the two numbers before it (for example, 0, 1, 1,)..

How it works

To apply Fibonacci retracement, traders identify a significant price move (swing high to swing low or vice versa) and draw horizontal lines at key Fibonacci levels of 23.6%, 38.2%, 50%, 61.8%, and 78.6%. These levels act as potential support or resistance areas where traders expect the price to reverse or continue its trend.

Key levels

The Fibonacci retracement levels that are most frequently employed are:

0.236 (23.6%)

0.382 (38.2%)

0.500 (50%)

0.618 (61.8%)

0.786 (78.6%)

These levels are considered significant as they often coincide with natural market retracements before the price resumes its previous trend.

Conclusion:

Fibonacci retracements are a powerful tool in a trader's arsenal, providing insights into potential levels of support and resistance. By understanding how to use Fibonacci retracements and extensions, traders can enhance their technical analysis and make more informed trading decisions.