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Many people enjoy trading Fibonacci retracements because they can produce some excellent trading signals, and it’s amazing how often the price actually does bounce these important levels. But I think there is a risk that some traders will end up placing too much faith in them, and will eventually lose money due.

The fact is that nothing magic about whether key Fibonacci Fibonacci retracement level. The only reason why the price seems to turn around these levels is important because so many other traders around the world also use the same Fibonacci retracement levels on their charts. So if that kind of result is a self-fulfilling prophecy, because these same traders, transactions around these levels are important places at the same time, bringing the price to react as predicted.

There are different levels, who will appear on your charts. When the high and low points of a recent increase in the price plot you will be able to see where the 23.6%, 38.2%, 50% and 61.8% retracement level. In other words, if the price of one currency pair moves 100 points lower (from the high point low point), it is very likely that resistance to 23.6, 38.2, 61.8 or 50 points higher, at down again to find.

When I use Fibonacci myself (which is very rare), I always use the 61.8% retracement level, because I’ve always found that the most important support / resistance level. But it must be said that none of these levels are watertight. While you will find lots of examples where the price is indeed back on these important levels, there will be many examples where the price just went straight through them.

So if you trading the intraday forex markets using Fibonacci would probably wait until one of the key Fibonacci levels can before entering a short position. Let’s assume that you wait for the 61.8% level, as I said, is generally the most reliable.

If you look at the red arrow, you can see that the price downward bent exactly at this point and fell about 23 points, which is a decent move. The price then moved back up and tested that level again. Many day traders may well be inclined to a short position here to enter, but as you can see where I placed the green arrow, the price just went right through.

Furthermore, anyone entering short positions on any of the Fibonacci retracement levels will have little joy, because there were no reversals at all around these levels.

So the point I would make is that Fibonacci trading is good to a certain point, but I do not personally think that you have to trade in isolation. You are better off using them as a general guide, and using a few other technical indicators, pivot points and perhaps if you day trading. That way you benefit from the combination of Fibonacci levels and widely used technical indicators, which in turn will help to find numerous high probability trades.

Fibonacci Retracements in Forex Currency Trading – Fibonacci retracements can produce some excellent trading signals, and it’s amazing how often the price actually does bounce these important levels.