How to Calculate Fibonacci Retracement for Forex Trading

What is Fibonacci Retracement

How to use Fibonacci retracement is a very interesting topic of discussion. Before fully understanding and applying the concept, you must of course understand the Fibonacci series. The origins of the Fibonacci series can be re-learned by looking at ancient Indian mathematical scripts. However, the science of Fibonacci was re-developed by Italian mathematician Pisano Bogollo in the 12th century who discovered the Fibonacci numbers. The Fibonacci number series is a series starting from the number 0 which is arranged in such a way that any value in the series of numbers comes from the sum of the two previous numbers.

Fibonacci retracement levels helps traders in determining support and resistance levels in the stock market. Stock support levels occur when buyers enter or buy stocks, while resistance levels indicate the maximum price point in the stock market where most sellers will sell their crips.

You can also use Fibonacci retracement by combining several other trading indicators. Fibonacci retracement is also used to calculate other theories such as Elliot Wave and Dow theories.

How Fibonacci Works in Forex Trading

Below is a series of Fibonacci Retracement numbers that you should know:

0,1,1,2,3,5,8,13,21,34,55,89,144,233,377,610 and so on.

To understand further, pay attention to the example of the Fibonacci retracement calculator below:

233 = 144 + 89

144 = 89 + 55 

89 = 55 + 34

What is interesting about Fibonacci calculations is that the ratio is always around the value of 1.618.

For example:

610:377 = 1.618

377:233 = 1.618

233:144 = 1.618

The Fibonacci ratio of 1.618 is considered the golden ratio or Phi. The numbers in Fibonacci have a relationship with nature. Where the ratio can also be found in flower petals, animal bodies, human faces, galaxy formations, etc. But you don't need to focus and go too far into the discussion of basic Fibonacci because we will only focus on discussing how to use Fibonacci retracement.

How to Use Fibonacci Retracement in Forex Trading

How to use Fibonacci retracement in stocks and forex trading is by combining several trading strategies. For example, the current stock price is falling, then you can take advantage of the levels set by Fibonacci and place your trades on the underlying trend. The levels in Fibonacci can be a lifesaver for traders who are behind and allow them to wait for the right time. By plotting ratios such as 23.6%, 38.2% and also 61.8% on the chart, traders can find their retracement levels to enter profitable trades. Below are strategies that you can use when trading forex with Fibonacci:

• MACD Indicator

This strategy helps you to recognize the MACD indicator crossover when the stock asset price has reached a key Fibonacci level. When this happens, trading can be done according to the trend direction.

• Oskilator Stochastic

This indicator is a very useful tool that is usually used to identify oversold or overbought levels, but it can also be used to predict trend reversals. The indicator looks harmonious with price bounces and oversold or overbought signals from stochastic. Both signals indicate the potential to open a position.

Get Trading Profit Fast! Download the Application Now

Advantages of Using Fibonacci Retracement

• Tools for identifying support and resistance levels: In Fibonacci retracement, it can be used to strengthen suspicions about existing trends in the market.
• Entry and exit detector: support and resistance levels can show opportunities in the market trend whether bearish or bullish. Fibonacci retracement can also suggest the right time to close or open a position.
• Straightforward: Fibonacci retracement levels are easy to spot and fixed. Plus, they don't require any calculations.
• Versatile: Fibonacci retracement works effectively using several technical indicators.

Disadvantages of Using Fibonacci Retracement

• Subjective: Some traders feel that using Fibonacci retracements is a self-fulfilling prophecy. If traders observe and act on the same Fibonacci ratios or use other indicators, orders will simply gather around the same price levels.
• No guarantees: While Fibonacci retracements give traders insight into price at support or resistance levels, they do not guarantee that price will always stop there. So these levels need to be used with other indicators to help confirm.
• It is difficult to recognize the levels correctly: there are so many different Fibonacci levels, one of which is where the price is likely to reverse. Unfortunately, traders often have difficulty determining which levels are useful to them at a given time.

Conclusion

Fibonacci retracement is used to analyze future turning points in the stock market. Based on previous fundamental behavior, skilled traders can plot retracements and Fibonacci ratios to uncover potential support and resistance levels. By utilizing this indicator, they can anticipate the next price direction accurately.

It is important to realize that Fibonacci lines are only used as a confirmation tool. So using these indicators together is highly recommended. The more confirming factors, the stronger the trading signal is.

Come and join us! Learn to Use Fibonacci Levels with GICTrade Now!

For those of you who are still thirsty for the world of forex trading as a whole, now you don't need to worry about where to learn! Join GICTrade now. GIC provides trading education for all groups who want to learn further. You can join the community of other traders on Telegram GICtrade or follow our social media on Instagram GIC for other information updates ranging from webinars to attractive prizes.

What are you waiting for? Join us at GIC now so you can start investing and trading forex with easy, guaranteed safe transactions and of course lots of profit.