How to use Fibonacci retracement in Forex?

[Michael Nigelson]

Hi, I would like to learn how to use Fibonacci retracement.

[Fernando Cortez]

Forex traders use Fibonacci retracement to keep track of points that specify where to put a market entry-level, identify profits, and place stop-loss orders.  Fibonacci retracement is most commonly used in order to identify support and resistance levels of a specific asset. When these change, so does the Fibonacci retracement pattern, identifying their new levels.

This strategy is most commonly used, when a market makes a huge upwards or downwards move, then recalibration takes place, which helps identify new levels of support and resistance. 

Traders plot the key Fibonacci retracement levels of 38.2 percent, 50 percent, and 61.8 percent by drawing horizontal lines across a chart at those price levels to identify areas where the market may retrace to before resuming the overall trend formed by the initial large price move.

Using Fibonacci retracement strategies means that traders are relying heavily upon hard data and should keep emotional interference to a minimum. They can be applied in a short or long time period, usually in the short-term, as most trades in Forex are of such type.