EURUSD 1.1860 USDJPY 111.61 USDCAD 1.2371 EURCZK 26.031 USDCZK 21.944 EURPLN 4.2727 USDPLN 3.6031
EURUSD 1.1860 USDJPY 111.61 USDCAD 1.2371 EURCZK 26.031 USDCZK 21.944 EURPLN 4.2727 USDPLN 3.6031

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Fibonacci retracement uses ratios derived from the golden ratio to identify resistance and support levels

Rule of thumb

Levels of support or resistance identified by the Fibonacci retracement tool can be taken into consideration when analysing the market

 

However, they are rather far from being a complete trading system

Fibonacci retracement uses ratios to determine key price positions used as resistance and support levels.

 

Fibonacci retracements, fibonacci theory

 

The key ratios used are: 23.6%, 38.2%, 50%, 61.8% and 100%. The most intuitive levels are 50% (which is simply half the distance of two points), 61.8% - which is the same as multiplying 0.6182 (the value resulting from the division of a number by its previous number in the Fibonacci sequence) by 100%, and 38.2% which results from the difference of 61.8% from 100%.

 

The last number, 0.382, also results from dividing one number by the number found two places ahead in the Fibonacci sequence. Similarly the level 23.6% is found by dividing one number by the number located three places ahead in that sequence.

 

There are two points needed to use the Fibonacci retracement. These should be extreme points - usually a peak and a low, or the opposite, a low and a peak. Once these levels are identified, the horizontal lines will indicate support and resistance levels.

 

You can also refer to the general introduction to the Fibonacci theory.

 

How to use it with MetaTrader 5:

  • Select  either a bar chart Bar charts or candlestick chart Candlesticks.
  • Look for a local market  extreme – a peak or low at the starting point of the investigated period.
  • Choose the “Insert” option from MetaTrader 5 menu, then click “Objects”/”Fibonacci”/ “Fibonacci retracement”.
  • With the left mouse button press  the peak (low) and drag to the second point, which should be a low (peak) on the opposite side of the investigated market period.

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