# Blog

### Trade A Price Correction With Fibonacci Retracement Indicator

Fibonacci retracement analysis can be used to confirm entry level and determine stop-loss level. Ezekiel Chew the founder and head of training at Asia Forex Mentor isn’t your typical forex trainer. He is a recognized expert in the forex industry where he is frequently invited to speak at major forex fibonacci indicator events and trading panels. His insights into the live market are highly sought after by retail traders. The basic principle of any Fibonacci tool is a numerical anomaly that is not based on any logical reason. It can be frustrating for traders who want to understand the logic behind a strategy.

For example, these levels are common in various harmonic patterns, such as Gartley and Elliott’s wave theory. After a significant increase or decrease in price and a correction, these analyzes find that the corrections will tend to retrace back to a certain Fibonacci level. In this way I don’t end up trading https://xcritical.com/ all pullbacks; I only trade pullbacks that meet certain criteria. What I usually do is wait for retracements between 40% and 70%, estimated. Once the price enters that approximate area, I wait for a slowdown. A slow down or consolidation is when the price moves sideways for a few bars during a pullback.

## Fibonacci 101

Always apply Fibonacci retracements with the trend; trough to peak for bullish trends, peak to trough for bearish. In addition to simple charting retracement or trend line, other techniques using Fibonacci numbers have also been found to be useful. Among these are Fibonacci Arcs, Fibonacci Fans, Fibonacci Expansions, Fibonacci Channels and Fibonacci Time Zones. With this, the numbers in the sequence turn out to be 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and onward to infinity. Although the Fibonacci sequence is integer-based, these mathematical relationships are often expressed visually. In fact, the sequence is a key element of fractal geometry, which may be used to study the symmetric qualities of figures that occur in nature.

The series of numbers is created by adding each of the next two numbers in the series to create the following number. Thus the series goes 0, 1, 1, 2, 3, 5, 8, 13, 21, etc, into infinity. In technical analysis of financial markets the numbers themselves aren’t as important as the ratios between the numbers. Traders use these ratios – 23.6%, 38.2%, 50%, 61.8%, and 100% – to identify support and resistance areas for markets. When interpreting the above data set, it is safe to say that Company A’s stock is trending if prices remain above US\$16.18 or US\$13.82. Also, it’s important to realise Fibonacci retracements produce support levels for pullbacks in an uptrend and resistance levels for pullbacks in a downtrend.

## Forex Trading Strategy Combining the Average True Range and the Simple Moving Average Envelope

Be sure to practice with them and test them out in a demo account before incorporating them into your trading plan or using real capital. Using an additional analysis technique to filter trade signals is highly recommended.In this case, we have what I call I multi-bar engulfing pattern. There is the red bar dropping to the 38.2 level, followed by a little bar, followed by a big green bar.

• We have already established that the price of a market can often turn, or find support or resistance, at different Fibonacci levels.
• Fibonacci retracement can also be used to identify signals for a potential reversal in prices.
• For example, the price of a share increases from \$5 to \$10 and then to \$7.50.
• The Fibonacci Sequence is a series of numbers, where each number is the sum of the preceding two and return a constant ratio of 0.618 when dividing a chosen number with the next in the series .
• Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
• With arcs, analysts choose a trend line between two extreme points in a price movement between a low and a high, and draw arcs across the chart at the levels of 38.2%, 50% and 61.8%.
• Fibonacci retracement levels often mark retracement reversal points with surprising accuracy.

That big green bar engulfs that prior big red bar, and that is all I care about. What I care about is the transition back to the upside in this case, and that big green bar showed that was happening. Common Fibonacci Retracements levels are 23.6%, 38.2%, 50.0%, 61.8% and 78.6% (or 76.4%; since these are so close, it doesn’t really matter which is used). With the exception of 50%, these percentages are derived from the Fibonacci sequence. A number divided by the next highest number gravitates toward 61.8% (0.6180) as the numbers increase. A number divided by a number two places ahead of it gravitates toward 38.2% (0.3820), and a number divided by a number three places ahead of it gravitates toward 23.6% (0.2360). 