To draw Fibonacci retracements on your charts, you can follow these steps:
Identify a swing high and a swing low: Look for a significant move in price that has a clear high and low point. The swing high should be the highest point in the move, while the swing low should be the lowest point.
Determine the Fibonacci levels: Once you have identified the swing high and low, you can use a Fibonacci retracement tool to draw the retracement levels. Most charting platforms have this tool built-in. The common retracement levels are 38.2%, 50%, and 61.8%. Some traders also use 23.6% and 78.6% as retracement levels.
Draw the retracement levels: Using the Fibonacci retracement tool, click and drag from the swing high to the swing low. This will draw the retracement levels on your chart.
Interpret the retracement levels: The retracement levels act as potential support and resistance levels. If the price retraces to one of these levels, it could provide a trading opportunity. Traders often look for price action signals, such as candlestick patterns or chart patterns, to confirm their trades.
Adjust the levels: If the price continues to move beyond the swing high or low, you can adjust the Fibonacci retracement levels accordingly. Simply click and drag the tool to the new high or low point to redraw the levels.
It's important to note that Fibonacci retracements are not foolproof and should be used in conjunction with other technical analysis tools and indicators to confirm trades.
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