How to Use Fibonacci Retracement to Find the Support and Resistance Levels

By mosesbet · Filed Under Spread Betting Comments Off on How to Use Fibonacci Retracement to Find the Support and Resistance Levels 

The Fibonacci Retracement levels (0%, 23.6%, 38.2%, 50% and 100%) can be used to find the support and resistance levels in different types of markets.

The Fibonacci Retracement works without fail and 99% of Forex traders will be using Fibonacci Retracement in addition to MAs and trend lines to help find the support/resistance levels for currency pairings.

In order to plot the Fibonacci levels on the graph we first need to find the swing high and lows for that period (a swing high is a candle-sick with at least two lower highs on both the left and right of itself; a swing low is a candle-stick with at least two higher lows on the left and right of itself).

In order to find downwards price movements, click on the swing high and drag the mouse to the nearest swing low. This creates a straight line that looks sort of like a trend line (but it isn’t!).

Once you’ve done this, the Fibonacci indicator will display the Retracement levels from the swing high down to the swing low.  The expectation is that the swing high will retrace and find support at one of the Retracement levels (0%, 23.6%, 38.2%, 50% and 100%) plotted on the chart.  Depending on the exact market, the price might fall and bounce back up at one of these levels (it always happens at one of these levels).

On the contrast, if you’re looking for upward price swings then you click on the latest swing low and drag the mouse to the nearest swing high.  This again plots the Resistance levels which will identify all future resistance levels.

Combining Fibonacci Retracement with Trend Lines

The thing about Fibonacci Retracements is that they always work best when working with a strongly trending market.  Although Fibonacci Retracements work 95% of the time, they don’t always guarantee that the price won’t break out of these levels.  It’s important to use other indicators such as MAs or MACDs to improve our analysis and prediction of support and resistance levels.

For example, you can use Fibs and Moving Averages (MAs) for better technical analysis.  When the Fib Line lines up directly with the trend line then it provides a much more reliable prediction of what will happen. In this example, the trend line is moving upwards and crosses the start of an upward trending Fibonacci Retracement at 82.60.  This is the perfect time to be going long and we can use one of the Retracement levels above as our price resistance level.

You can also use Fibonacci Retracement Levels in concatenation with candle-stick chart to find exhausted candlesticks (i.e. where the wick is much higher/lower than the real body and has met strong resistance).

 

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