What are Fibonacci Retracement Levels? They are a technical analysis tool that can be used to identify possible support and resistance levels. The levels are calculated by measuring the distance of a move in price between two points, and then dividing that distance by the key Fibonacci ratios of 0.382, 0.5, 0.618, 1.0, and 1.618. In this blog post, we will discuss how to use retroceso de Fibonacci in trading and provide examples of how they can be helpful!
What are Fibonacci Retracement Levels?
Fibonacci Retracement Levels are a technical analysis tool that is used to identify support and resistance levels in a security’s price action. The levels are derived from the Fibonacci sequence, which is a series of numbers where each number is the sum of the previous two.
The most popular Fibonacci Retracement Levels are 23.6%, 38.2%, 50%, and 61.8%. These ratios can be used to identify areas where the price is likely to find support or resistance after a trend has been established. For example, if the price of a security has been trending higher and then retraces to the 23.6%
Fibonacci Retracement Level, that level may act as support and cause the price to rebound higher. Similarly, if the price retraces to the 61.8% level after an uptrend, that level may act as resistance and cause the price to reverse lower.
Fibonacci Retracement Levels are just one tool that technical analysts use to identify potential support and resistance levels in a security’s price action. Other tools include trendlines, moving averages, and support and resistance levels based on recent Swing Highs and Swing Lows.
What are the ratios derived from?
The answer is simple: they are based on Fibonacci’s sequence. This sequence is a series of numbers where each number is the sum of the two preceding numbers. The key Fibonacci ratios used in retracement levels are 23.618%, 38.200%, and 61.800%.
Numbers First Formulated in Ancient India
Many people are familiar with the Fibonacci sequence, a series of numbers in which each successive number is the sum of the two previous numbers. What fewer people know is that this sequence was first formulated in ancient India by a mathematician named Pingala.
Pingala’s work was later rediscovered by Leonardo Fibonacci, an Italian mathematician who gave the sequence its modern name. Fibonacci Retracement Levels are based on this sequence and are used by traders to identify potential turning points in the market. The levels are calculated by dividing the vertical distance between a high point and a low point by key Fibonacci ratios.
These levels can then be used to create support and resistance levels, providing crucial information for making trading decisions. While Fibonacci Retracement Levels are just one tool that traders use to make decisions, they can be an effective way to identify potential opportunities in the market.
How to Use Fibonacci Retracement Levels in Trading
The first step is to find the major high and low points of the price move you’re analyzing. From there, you can apply the Fibonacci ratios to find potential retracement levels.
The most important Fibonacci Retracement Levels are:
These levels will help you identify possible support and resistance levels where the price may retrace to during a pullback or correction.
Examples of Using Fibonacci Retracement Levels
Example #1: Bullish Move in EUR/USD
In this example, we can see how the Fibonacci Retracement Levels helped us predict where the price would find support during a corrective move lower. As you can see, the price found support at the 61.800% Fibonacci Retracement Level and then resumed its uptrend.
Example #2: Bearish Move in GBP/JPY
This example shows how to use Fibonacci Retracement Levels in a bearish market. As you can see, the price found resistance at the 23.618% Fibonacci Retracement Level and then continued its downtrend.
In conclusion, Fibonacci Retracement Levels are a technical analysis tool that can be used to identify possible support and resistance levels. They are based on Fibonacci’s sequence and the key ratios derived from it: 23.618%, 38.200%, and 61.800%. These levels can help you make better Forex trading decisions by giving you a better idea of where the price is likely to find support or resistance during a pullback or correction.
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