Fibonacci Retracement-is It The Holy Grail

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Many traders use fibonacci retracement levels in making their entry and exit decisions for a trade. Traders use Fibonacci Retracement levels to help identify the price support and resistance.

Fibonacci sequence is derived by adding the two proceeding numbers to find the next number in the sequence.

The first two numbers are 0, 1 and after that you can add the two proceeding numbers to find the next number. So, the third number will be 1, the fourth: 2, the fifth: 3, the sixth: 5 and so on.

The sequence develops like this: 0,1,2,3,5,8,13,21,34,55,89,144,233,377,610,987,...........out to infinity.

Dividing any number in the sequence with the next higher number gives the same ratio 0.618 in this sequence. This ratio is very important. Similarly dividing any number in the sequence with two numbers higher than this number gives another important ratio 0.381. Traders use these two numbers in addition to 0, 0.5 and 1 as Fibonacci retracement levels.

This retracement can be partial or 100%. So the original low point is the 100% retracement level when drawing the Fibonacci Retracement Levels and the high will be the 0% level. In between, there are the 38.1% level, the 50% level and the 61.8% level. When the price action reaches one of these levels it may go through it or it might fail to break it. In case of a high to low retracement, if the price action is unable to break one of these levels, that level is taken as a key area of support.

We all know that markets are just people buying and selling. What the people believe, the markets believe too. In other words, people's emotions and sentiments have a lot to do with determining the behavior of the market. When people are bullish, markets are bullish and when the people are bearish, markets are bearish.

As majority of traders use these Fibonacci Retracement Levels in their buy or sell decision, the markets tend to show key support or resistance at these levels. Fibonacci Retracement is a leading indicator unlike most other technical indicators that are lagging in nature. This makes them a very powerful tool in the hands of an experienced trader.

About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. Learn this powerful Fibonacci Retracement method FREE that pulls 500+ pips per trade. Get these Forex Scalping Cheatsheets plus the 10X Scalping System FREE!



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