Do Not Ignore Fibonacci Retracement !!!

Many new traders involved in forex technical analysis may decide to ignore fibonacci retracement when trading currency pairs. They may believe that its too technical. Or that it doesnt suit their style. Or that its just plain voodoo. But the fact is, many traders do use it and at some point trading around forex fibonacci retracement points becomes a self-fulfilling prophecy.

So with this in mind, its important that you learn to use this relatively simple indicator in your own forex technical analysis.

In forex technical analysis, the key fibonacci retracement numbers are .382, .5, and .618. So traders who use forex fibonacci retracement would expect their trending currency pairs to retrace by 38.2%, then 50%, and then 61.8%. They would see a retracement of more than 61.8% as a sign that the currency pairs trend is reversing.

Fibonacci Retracement in an Uptrending Market

If one of the currency pairs that you are following is in an uptrend, then knowing the points to which it will retrace will allow you to enter or add to your position. Lets assume that one of your currency pairs has made a move of 250 PIPs-from .940 to .9650. At this point its showing signs of retracing.

Using forex fibonacci retracement, the currency pairs price should follow the following formulae:

The first move downward should be the highest price less 38.2% of the move upward-the formula will look as follows:.  9650-(.0250*.382)=.9554

If the currency pairs price does not rally from here, then the next forex fibonacci retracement level will be the highest price less 50% of the move upward-the formula will look as follows:.9650-(.0250*.5)=.9525

The final forex fibonacci retracement level will be the highest price less 61.8% of the move upward-the formula will look as follows:.  9650-(.0250*.618)=.9496

How Can Fibonacci Retracement Tells You A Signal?

If the currency pairs price breeches this level, then forex traders using fibonacci retracement will view this as a signal for a trend reversal using their forex technical analysis.

Dont run away from the idea of forex Fibonacci retracement. It may seem too technical-or even unlikely, but if you can make it work in your forex technical analysis, it can really help to simplify your trading decisions. Allowing you to quickly identify possible entry and exits points for currency pairs. And even if you dont believe in it, knowing the forex fibonacci retracement levels will give you an insight into why currency pairs sometimes act the way they do.