Fibonacci retracement is a popular technical analysis tool used by traders to identify potential price levels in the forex market. The tool is based on the Fibonacci sequence, a mathematical sequence that occurs in nature and is used to identify levels of support and resistance in price movements.
The Fibonacci retracement levels are derived from the high and low points of a price movement. The tool then draws horizontal lines between these points, representing potential areas of support and resistance. The levels are based on the Fibonacci sequence, with the most commonly used levels being 38.2%, 50%, and 61.8%.
When price hits the 100% level on the Fibonacci retracement, it means that the price has retraced the entire price movement. This level is also known as the swing high or swing low. If the price hits this level, it is a signal that the current trend may be ending, and a reversal may be imminent.
If the price hits the 100% level on the Fibonacci retracement, traders will typically look for confirmation of a reversal. This may include looking for candlestick patterns, trendline breaks, or other technical indicators that suggest a change in direction is likely.
On the other hand, if the price hits the 0% level on the Fibonacci retracement, it means that the price has retraced the entire price movement in the opposite direction. This level is also known as the swing high or swing low, depending on the direction of the price movement.
If the price hits the 0% level on the Fibonacci retracement, traders will typically look for confirmation of a continuation of the trend. This may include looking for bullish or bearish candlestick patterns, trendline breaks, or other technical indicators that suggest the trend is likely to continue.
In either case, it is important for traders to use caution when trading around the 100% or 0% Fibonacci retracement levels. These levels are considered significant points of support and resistance, and a break above or below them can signal a major change in market direction.
Traders should also be aware that the Fibonacci retracement tool is not foolproof and should be used in conjunction with other technical indicators and fundamental analysis. While the tool can be helpful in identifying potential price levels, it should not be relied on as the sole basis for making trading decisions.
In conclusion, if the price hits the 100% or 0% level on the Fibonacci retracement, it can signal a major change in market direction. Traders should use caution when trading around these levels and look for confirmation of a reversal or continuation of the trend. It is also important to use the Fibonacci retracement tool in conjunction with other technical indicators and fundamental analysis for a more comprehensive view of the market.
