Fib Graphic Tool

Fibonacci Retracement is one of the most important tool that a trader needs to master as it is extensively used by majority of the traders in their day trading and swing trading no matter what market you trade. Fibonacci retracement is a leading indicator as it projects the future possible retracement levels in the price action. No matter what market you trade whether you trade forex, futures, stocks, ETFs, commodities, options or whatever, you can use these Fibonacci Retracement Levels.

Why the price action try to retrace itself after a move from the low to the high or for that matter high to the low. When the price makes a rapid move from the low to the high, it stops at some level where the market tries to comprehend what happened.

This is also known as consolidation. The market tries to absorb the price movement and if the underlying fundametals in the market are unchanged after some consolidation, the price action will again start moving in the previous direction.

Now, let's explain everything with a practical example. Suppose the price action makes a move from the low to the high on a particular currency pair or for that matter any stock or security. In the beginning, the price action moves in the upward direction fast as more and more buyers jump into the market. But after sometime, the buyers get exhausted and the price action starts losing the momentum. Soon, the price action reaches it's highest point and after that starts to move downward.

At the highest point, the market consolidates itself and tries to retrace it's move back to the initial price level. Now, this retracement can be complete and 100% or less. Fib Graphic Tool is used to draw these inbetween possible retracement levels. These levels are lines projected into the future and are also known as the Fib Line. Fib Graphic Tool is available on almost all the trading platform that you use now.

In the same way, if the price action moved from high to low, the 100 percent level retracement level will be in this case the original level, the high point. This will be the level where there will be 100 percent retracement. Once, you connect the low with the high, the Fib Graphic Tool will draw the Fibonacci Levels.

These Fibonacci Retracement levels will be horizontal lines that will apear at 0%, 23.6%, 38.2%, 50%, 61.8% and 100%. Now these are possible level upto which the price action may retrace itself in the future.

You don't know yet what will happen when the price action reaches these levels. If the price action probes the 38.2% level and goes through it, it means that this level was meaningless for the market. But, on the other hand, if the price action is unable to go through this level and simply can't breakout from it, it is a key area of support if the price action was from low to the high. On the other hand, if the original price move was from high to low then this 38.2% becomes a key area of resistance in case the price action is unable to go through it.