How to trade with Fibonacci levels

how to trade with Fibonacci in this lesson you will learn what Fibonacci is why Fibonacci levels work what retracement levels are and how they can be used what extension levels are and how they can be used and how their Bonacci levels can be used for trading the Fibonacci tour places support and resistance levels on your chart the prices at which the support and resistance levels are placed are calculated based on the Fibonacci sequence the Fibonacci tool makes use of the premise that after an uptrend price will retrace by a certain percentage of the original price movement before continuing on in the original direction so in an upward movement the price will retrace back down by a certain amount before continuing on up and when the price moves down it will retrace back up by a certain percentage before moving back down the mathematical calculations of the fibonacci sequence and how the levels are derived go beyond this video however further information regarding this can be found in the glossary Fibonacci levels tend to work very well because they are observed and used by many traders making them a self-fulfilling prophecy whenever the price reaches a Fibonacci level traders will act accordingly by buying or selling which strengthens these levels as stronger support or resistance here the price has moved up there is an initial move to the upside from point A to point B after the price moves up there is a retracement after point B after the price begins to retrace it becomes clear that point a is the beginning of the initial move up and point B is the end of the initial move up once this happens we can use the Fibonacci tool to place the Fibonacci levels the Fibonacci is drawn from left to right starting at Point a and up to point B the Fibonacci tool then automatically plots the levels on the chart the line at point B is the zero percent line the line at Point a is the 100% level every line between 0% and the 100% is called a retracement level every line on the other side of the zero percent level is called an extension level price will first retrace back to a retracement level before commencing to an extension level if the market is trending in a downtrend this is the same the line at point B is the zero percent line the line at Point a is the 100% level the price will go back up to a retracement level first and then continue down to an extension level when the market is trending it is important to note that Fibonacci levels also behave in the same way as normal support and resistance levels and so support can become resistance and resistance can become support you can use the Fibonacci retracement levels for an entry into the market as the price comes back to them an entry in an uptrend is where you wait for the price to find confirmed support at one of the retracement levels traders can wait until the price begins to move up in the same direction of the original uptrend before entering a trade the entry can then be made and the stop-loss can be set below the retracement level you can take profit at one of the other Fibonacci levels in a downtrend an entry could be taken after price has found resistance of one of the retracement levels traders can wait until price begins to move down in the same direction of the original downtrend again the entry is made with the stop-loss above the retracement level and profit can be taken at another four Bonacci level there is a correlation between the level the prices retraced to and the level to which it extends therefore you can use the extension levels as profit targets for example it has been observed that if price retraces to the 50 percent level or the 61.8% level point c it will often carry on to reach the 161 point eight percent extension level point D if the market is in a confirmed trend so when entering a trade using the Fibonacci indicator if you see that the price has come down to the 50 percent level you can set your profit target at the 161 point 8 percent level likewise it has been observed that more often than not when the price retraces to the 38.2% level the price will reach the 100 38.2% extension level when the market is in a confirmed trend so far you have learned that the Fibonacci tool can be used to draw support and resistance levels on your charts based on the Fibonacci number sequence the Fibonacci tool is always applied from the left to the right hand side of the price chart for both long and short trades you also learned that retracement levels are commonly where traders look to enter the market extension levels are commonly placed where traders look to take profits furthermore there is a correlation between the 38.2% retracement level and the 138 point two percent extension level and between the fifty percent or the 61.8% and 161 point eight percent levels you

Channel: Khandaker Islam

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Keywords: Fibonacci, forex fibonacci, Trade (Organization Type), forex trading

Id: 5H4bjxGo3cA

Length: 6min 1sec (361 seconds)

Published: Sun Mar 24 2013