If you have been trying to find your go to technical analysis indicator to start trading and become profitable, you have probably heard of Fibonacci Retracement. Many full-time traders you see online use this technical indicator but explaining it in layman’s terms takes quite a bit of skill.
What is Fibonacci Retracement?
Fibonacci Retracement uses the basic horizontal lines of possible support and resistance levels where each level has a percentage. This percentage represents the amount of a previous move the price has gone back over. The levels are 23.6, 38.2, 61.8 and 78.6, with 50 an unofficial level used also.
How to Use Fibonacci Retracement
Select two significant price levels, such as support and resistance, and the Fibonacci Retracement indicator will automatically show the levels between those two price points.
Fibonacci lines are used by traders to determine an area to enter and exit a trade. For instance, if the price bounces off the 0.618 Golden Ratio and continues a move upward, a trader may decide to buy the longer trend up.
The fib levels are based on the Golden Ratio 0.618 which also describes proportions of everything in nature, from atoms to stars. This level is a fundamental building block of nature, and traders pay very close attention to this important level.
After learning the basics of the Fibonacci Level, you can learn more about trading this indicator strategy and start using it to earn some profits. After some practice, you will be able to spot entry and exit levels.