Fibonacci Retracements: A Practical Guide for Forex

Fibonacci retracement is one of the most popular technical analysis tools, used by traders worldwide to identify potential support, resistance, and entry points. Based on the mathematical Fibonacci sequence, these levels have a remarkable tendency to coincide with market turning points.

The Key Fibonacci Levels

The most important retracement levels are:

• 23.6%: Shallow retracement in strong trends
• 38.2%: Common retracement in healthy trends
• 50%: Not technically a Fibonacci number but widely watched
• 61.8%: The "golden ratio" - often the last support before reversal
• 78.6%: Deep retracement suggesting potential trend failure

How to Draw Fibonacci Retracements

1. Identify a significant swing high and swing low
2. In an uptrend: draw from swing low to swing high
3. In a downtrend: draw from swing high to swing low
4. The tool automatically plots retracement levels

Trading Strategies

Trend Continuation

Look for price to retrace to the 38.2% or 50% level in a strong trend, then enter in the direction of the trend when you see reversal signals.

Confluence Trading

Fibonacci levels are most powerful when they align with other technical factors like moving averages, previous support/resistance, or trendlines.

Common Mistakes

• Using Fibonacci in isolation without confirmation
• Drawing from wrong swing points
• Expecting exact bounces—treat levels as zones