Fibonacci trading is one of the most prolific trading methods, which is widely used by Forex traders. Retracement length, Fibo levels as well as reversal candle are three factors that Fibonacci traders need to pay attention to. In today’s article, we are going to demonstrate an example of a chart, which makes an excellent bearish move after having a retracement. The length of retracement, the most significant Fibo level, and the reversal signal all play their part in this example. Thus, fasten your seat belt and read through.
The chart shows that it makes a strong bearish move and makes a breakout at long-held support. The price heads towards the South, searching for its support. The sellers are to wait for the price to have a retracement.
The price starts having retracement. It produces a bullish inside bar followed by another bullish candle. The sellers are to wait for the price to find its resistance and produce a bearish reversal candle. However, the Fibonacci traders are to wait for the price to produce a bearish reversal candle at a very particular level, which is the 61.8 level.
The chart produces a bearish engulfing candle closing well below the last bullish candle. The Fibonacci traders must draw the Fibonacci retracement levels to find out which level produces this reversal candle. If this is the level of 61.8, the Fibo sellers are going to go short in the pair.
The highest high is the level of 0.00, and the lowest low is the level of 100.0. The price has a retracement and produces a bearish engulfing candle right at Fibo level 61.8. Usually, when the level of 61.8 works as support/resistance, it drives the price towards the level of 161.8. This means the price may head towards the South and hit the level of 161.8 next. Let us proceed to the next chart and see what the price does here.
The price hits 161.8 level. It makes an upward correction on its way. However, it reaches the level at last. The last candle shows that it breaches the level of 161.8. The price may head towards the South further.
The level of 61.8 is called the Golden ratio. It is a super significant level as far as Fibonacci Retracement is concerned. The buyers in a buying market and the sellers in a selling market wait for the price to produce a reversal candle/signal candle to go long/short in a pair. Yes, there some equations for the traders to know and obey to be able to trade with Fibonacci retracement. Once they learn them well, Fibonacci trading can make them a handful.