Fibonacci Retracement - Trading With Fibonacci Retracements

Fibonacci retracement ratios are used by a wide variety of traders that utilizetechnical analysis to recognize areas of support and resistance in financial markets. The vast majority of traders use them with in conjunction with other forex indicators are a confirming tool.

Fibonacci retracements have Leonardo Fibonacci to thank for the series of numbers the tool uses. A retracement is created by selecting two points, typically a high and low point in the price and dividing them by certain fibonacci ratios. These ratios are 23.6%, 38.2%, 50%, 61.8% and 100%. When a retracement is plotted on the charts, the ratio lines are readily visible. The lines that represent the ratios can be utilized as areas of support and resistance.

It is uncertain how or why market prices respond to these ratios but history has shown us that they do. Because of their usefulness, most traders use fibonacci retracements in their daily trading.

Some familiar markets that utilize this tool include the stock market, commodities market, futures market and the forex market.

Some traders have tried to improve the performance of the fibonacci retracement tool by using to to find something called fibonacci confluence. Fibonacci confluence is a system that needs the plotting of two or more fibonacci retracements on the same instrument. These multiple lines all start from the same point but end at different levels of support and resistance.

Areas which are found to have more than one ratio line are considered areas with strong support or resistance.

Traders mark these areas as a reminder during trading.

Fibonacci retracements are never used on their own. To make them more effective, they are used with a variety of other indicators.

When utilized with a variety of tools and indicators, fibonacci retracements are often useful.