Fibonacci retracements are one of the many forms of chart analysis in forex trading. It allows traders to predict where the price of a security may stop going down or up as the case may be. The point where the price stops falling is known as support, while the point where the price stops rising is known as resistance. The most common fibonacci retracement levels are 38.2 percent, 50 percent, and 61.8 percent.

A PERIPHERAL GUIDE ON HOW TO CALCULATE FIBONACCI RETRACEMENT

Before you can calculate fibonacci retracement, you need to

- FING THE SUPPORT AND RESISTANCE

The support is known as the “price low” or “swing low”. It is the point where the price of the security being traded in a trending environment stops going down and starts going up. Find this point in the chart and mark it with an “A”. The resistance level I also known as the “swing high” or “price high”. It is the point where the price of the security being trades stops going up and begins to decline. Find this point in the chart and mark it with a “B”. This is the first step on how to calculate fibonacci retracement.

- CALCULATE THE FIBONACCI RETRACEMENT LEVEL

To use the fibonacci calculator to calculate the fibonacci retracement level, the market must be trending either in the upward direction or in the downward direction. When the market is trending upward, follow these guidelines in calculating the fibonacci retracement

• Subtract the value of “A” from “B” → B – A = C

• Multiply “C” by F percent → C X F% = CF

• Subtract CF from B → B – CF = FRL

Where

A = Support level

B = Resistance level

F% = Fibonacci percentage

FRL = Fibonacci retracement level

- MARK THE FIBONACCIRETRACEMENT LEVEL

After calculating the fibonacci retracement level, draw a horizontal line on the chart to mark the levels; do not forget to mark them with the appropriate percentage.

- CALCULATE EACH OF THREE OF THE MAIN FIBONACCI RETRACEMENT LEVELS

Three of the main fibonacci percentages are 38.2%, 50%, and 61.8%. In calculating the fibonacci retracement, you will need to calculate with these three fibonacci percentages. Repeat steps 1 to 3 above for each of the fibonacci percentages.

- APPLICATION OF THE RESULTS IN TRADES

The value of these calculations is used in making analysis in the forex market. It is used to predict potential areas of support in most cases. If the price pulls back to a fibonacci level and bounces high, it is considered a buy signal.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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