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Many of you may have heard about Fibonacci Retracement but don’t know how to use it. Let’s start with a basic definition: Fibonacci Retracement is a key technical analysis tool that uses percentages and horizontal lines drawn on price charts to identify possible areas of support and resistance. This tool can be used in any time frame and is easily available on Trading View.
Above, I have reported two empty retracements, one ascending and the other descending. Those horizontal lines are resistance and support levels that have been created. Why did I highlight 0.5 and 0.618 zones? They are the strongest resistance or support zones on the whole chart. I personally prefer the 0.61 zone, so if I see a retracement in that zone with a confirmation, I will enter the market.
As you can see from the chart, my retracement was created from the lowest point to the highest point; then I waited for the retracement to the 0.618 support and with the confirmation, I went long. Another way to use Fibonacci is to understand the next support or resistance area the price will reach; I will use the same chart above.
I left the yellow rectangle drawn on the previous 0.618 zone of our Fibonacci, then I traced a new Fibonacci from the highest point to the lowest point of the retracement, and a new upper zone has been formed; the new resistance will be our target and as you can see it has been achieved. In this case, we have analyzed the Fibonacci Retracement in an ascending trend; if it was descending, it would have been the same, but in reverse.
Only practice will make you perfect.
“The secret to being successful from a trading perspective is to have an indefinite and tireless thirst for information and knowledge.”
Paul Tudor Jones
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