Forex trading is a popular way of investing in the financial markets. It involves buying and selling currencies in order to make a profit. One of the tools used in forex trading is Fibonacci retracements. Fibonacci retracements are a way to identify potential levels of support and resistance in a market. These levels are based on Fibonacci ratios, which are derived from the Fibonacci sequence.
The Fibonacci sequence is a series of numbers in which each number is the sum of the two preceding numbers. The sequence starts with 0 and 1, and goes on indefinitely. The first few numbers in the sequence are 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and so on.
The Fibonacci ratios used in forex trading are derived from the Fibonacci sequence. The most commonly used ratios are 0.236, 0.382, 0.500, 0.618, and 0.786. These ratios are used to identify potential levels of support and resistance in a market.
When using Fibonacci retracements, traders will typically identify a swing high and a swing low in the market. The swing high is the highest point that the price has reached before reversing, while the swing low is the lowest point that the price has reached before reversing. Once the swing high and swing low have been identified, traders will draw Fibonacci retracement levels between them.
The question of how many pips between each fib is an important one when using Fibonacci retracements. Pips, or percentage in points, are a unit of measurement used in forex trading to measure the change in value between two currencies. The number of pips between each Fibonacci retracement level will depend on the specific market being traded, as well as the time frame being used.
For example, if a trader is using a 1-hour time frame to analyze a currency pair, they may choose to use Fibonacci retracements with levels drawn between the swing high and swing low that are 100 pips apart. This would mean that the 0.236, 0.382, 0.500, 0.618, and 0.786 levels would be 23.6, 38.2, 50, 61.8, and 78.6 pips from the swing low, respectively.
However, if the trader were using a 4-hour time frame to analyze the same currency pair, they may choose to use Fibonacci retracements with levels drawn between the swing high and swing low that are 200 pips apart. This would mean that the 0.236, 0.382, 0.500, 0.618, and 0.786 levels would be 47.2, 76.4, 100, 123.6, and 152.8 pips from the swing low, respectively.
It is important to note that the number of pips between each Fibonacci retracement level is not set in stone. Traders may choose to use different levels of separation based on their own analysis of the market. Additionally, traders may choose to use other Fibonacci ratios, such as 0.161, 1.000, and 1.618, in addition to the standard ratios.
In conclusion, Fibonacci retracements are a popular tool used in forex trading to identify potential levels of support and resistance in a market. The number of pips between each Fibonacci retracement level will depend on the specific market being traded, as well as the time frame being used. Traders may choose to use different levels of separation based on their own analysis of the market, and may also choose to use other Fibonacci ratios in addition to the standard ratios.
