What is the Fibonacci Retracement?

What is the Fibonacci Retracement?

Those that are looking for added ways of improving your forex trading strategy will often look to some of the trading tools commonly used by the experts.  One of these tools is the Fibonacci Retracement, and here we will look at some of the specifics related to the strategy.

The Fibonacci Retracement was named after an Italian mathematician who lived nearly 1,000 years ago.  But these are ideas that are alive and well even in the forex markets today as traders will often base their buy and sell levels on the information that can be gleaned from this type of analysis.

Common Price Levels

When you use Fibonacci Retracements on your price charts, you are looking for a significant move that has already been seen in the markets.  Then your platform plotter can show you the specific price levels that conform to specific percentage retracements.  

If you are looking to get started in trading with Fibonacci Retracements, the best broker option available is FiboGroup, which is an excellent broker that has published extensive research related to the topic.   Additionally, FiboGroup offers free access to the trading platforms that are most commonly used by Fibonacci analysis traders.  This is important because you will need to use software that plots the 38.2%, 50%, 61.8%, and 78.6% Fibonacci Retracements directly on your chart.  This can be very difficult to do manually but when we are using powerful market tools like MetaTrader 4, the process becomes much easier.  FiboGroup offers a free download of this program here:  MetaTrader4 download.

Betting on Reversals

When we are able to successfully plot the Fibonacci Retracements for a given price move, we can then establish positions that are based on the renewed potential for a price reversal.  This is essentially the power of the FIbonacci Retracement, as it allows us to see when prices are ready to reverse in the shorter term in order to regenerate the trend directions that are seen in the longer term.  

With all of this in mind, newer traders should always consider using the Fibonacci Retracement as an additional method in the trading arsenal.  This is a powerful tool that has been tested over decades by experienced traders, and it is something that can help you find new ways to capture profits in the forex market.

About the Author
Richard Cox is a university teacher in international trade and finance. Lessons in macroeconomics and price behavior in equity markets. Trade ideas are generally suggestive of time horizons of one to six months.

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