The key
Fibonacci retracement levels to keep an eye on are the 23.6%, 38.2%, 50.0%,
61.8%, and 76.4%. The ones that seem to hold the most weight are the 38.2%,
50.0%, and 61.8% levels. These are normally included in the default settings of
any Fibonacci retracement software.
If your trading software doesn't have a Fib tool, no worries -
we've got a Fibonacci calculator that will
do all the work for you!
Traders use the Fibonacci retracement levels as potential support and resistance. Since plenty of traders
watch these same levels and place buy and sell orders on them to enter trades
or place stops, the support and resistance levels may become a self-fulfilling
prophecy.
They key
Fibonacci extension levels are the 38.2%, 50.0%, 61.8%, 100%, 138.2% and
161.8%.
Traders
use the Fibonacci extension levels as potential support and resistance areas to
set profit targets. Again, since so many traders are watching these levels and
placing buy and sell orders to take profits, this tool tends to work due
self-fulfilling expectations.
In order to apply Fibonacci levels to your charts, you'll need to identify Swing High and Swing Low points.
A Swing
High is a candlestick with at least two lower highs on both the left and right
of itself.
A Swing
Low is a candlestick with at least two higher lows on both the left and right
of itself.
Because
many traders use the Fibonacci tool, those levels tend to become
self-fulfilling support and resistance levels or areas of interest.
When
using the Fibonacci tool, probability of success could increase when using the
Fib tool with other support and resistance levels, trend lines, and candlestick
patterns for spotting entry and stop loss points.
