Fibonacci retracement is a method of technical analysis which refers to the areas in a chart where the price of security goes low (support) and high (resistance). To find the fibonacci retracement levels, a trader can calculate this with the fibonacci calculator. While fibonacci retracement is very popular among traders, it is important to know that not all market conditions are favorable for its application. It might work in some other market conditions, but it works best when the forex market is trending.

THE BEST WAY TO CALCULATE THE FIBONACCI RETRACEMENT LEVELS

Calculating the fibonacci retracement level is not complex at all. All that is needed is the most recent swing high and swing low from the chart. When these values are entered into the fibonacci calculator, it produces the relative fibonacci retracement levels. Remember that the best way to calculate the fibonacci retracement level is taking the swing low and wing high from a trending market environment.

WHAT IS A TRENDING MARKET?

When you say the market is trending, it means that the market price is generally moving in one direction. This one directional movement is not free of setbacks as the market tends to move in the opposite direction every now and then, but eventually gets back on track. So, a trending market moves in one direction amidst high and lows.

In applying a fibonacci retracement calculator to a trending market, traders enter the most recent swing high (that is the highest point the price of security got to before it started coming down) and the most recent swing low (the lowest point the price of a security got to before is starts moving up again). The logic behind a trending market is that every current swing low is not as low as the previous one, and every current swing high is higher than the previous one.

THE CALCULATION

Although there is a calculator for calculating the fibonacci retracement levels, here is a little bit of what goes down in there

THE FIBONACCI SEQUENCE

This is a series of numbers that seem to occur consistently in nature. Two numbers are needed to calculate the sequence. In the forex market, the two numbers are the most recent swing low and swing high. In calculating the sequence, one I to add any fibonacci number together with the number that immediately precede it in the sequence.

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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