Fibonacci retracements

Fibonacci retracements have two main functions. The first being to trace resistances and supports whatever the timeframe you are studying. The second is to assist you in placing your take profit or stop loss.

The two most important numbers in the Fibonacci retracements are the 61.8% and the 38.2%, and are to be used only in a trendy market. It would make no sense tracing Fibonacci retracements in a tiny market range. That being said, a monthly range can feature a daily trend, where the Fibonacci retracements could still be used.

If you are currently facing an uptrend and you believe that market may still go up futher, then you can use the Fibonacci retracements both to predict resistances and supports.

In an upward trend to trace future supports one should drag the Fibonacci retracements from the beginning of the move, which would be at the bottom of your screen (probably bottom left) up to the top right side. By doing that you will have a set of Fibo retracements where the most important ones to be considered are the 61.8% and the 38.2%. If the price hit these lines it is very likely that I will bounce of several times before pursuing its course, or reversing.

The picture below follows the same logic, the only difference is that the Fibo is traced for a downward more, in order to determine supports.

In an upward trend to trace future resistances one should drag the Fibonacci retracements from the end of the move, which would be a top of your screen (probably top right) down to the bottom of your screen. This will lead to several retracements lines that are actually above the current High (retracements above 100%) and one should give particular attention to the first lines. Most probably if the price hit these lines it is very likely that I will bounce of several times before pursuing its course upwards, or reversing.

The picture below displays two sets of fibonnaci retracements traced on downward moves in order to spot resistances.

You will see on a later stage that Fibonacci lines are only of the numerous tools to be combined regularly in order to trace a comprehensive set of daily, and hourly resistances and support.

Spotting resistances and supports with the Fibonnaci retracements tool is useful but often not reliable when used alone. However when combined with other support and resistance tools it becomes quite precise.

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