Learn the Fibonacci retracement
When the market is in an uptrend, the general idea is to buy a pullback to a Fibonacci support level. In order to find the retracement levels, you need to click on a significant swing low and drag the cursor to the most recent swing high. This will display each of the retracement levels showing both the ratio and corresponding price levels.
Here is an example on a four hour chart in the EUR/USD. You‘ll notice we’ve plotted from the swing low at 1.2457 to the swing high at 1.3739. You can also see that once we drew our Fibonacci Retracements the Fibonacci Ratio’s were plotted. The expectation is that if EUR/USD retraces from the Swing high, it will find support at one of the Fibonacci Levels because traders will be placing buy orders at these levels as the market pulls back.
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|In this case you can see that once the market pulled back to the 0.618 retracement level, it found support and buyers stepped in to continue the trend. In order to see how we use Ninja Trader to draw a Fibonacci Retracement on a chart please see the following video.
|As you can see from the above video drawing a Fibonacci Retracement is a quick process and very useful in helping to predict where the market is heading to. The next example is a weekly chart of Soybeans.
The Fibonacci Retracement tool can be used on every market and in every timeframe as seen here is this example of the Soybeans Market. We drew from the swing low at 841.00 to the swing high at 978.50. Soybeans then pulled back into the .0618 and found support before reversing and continuing its trend upwards.
|Here is one final example in stock Apple (AAPL). You’ll notice once again we drew from the swing lows around 6.35 to the swing high at 202.98. Once Apple came down to the 0.618 level , buyers stepped in and bought Apple back up.|
You’ll notice that it doesn’t matter which market you are looking at. Fibonacci Retracements exist everywhere. You’ll also notice from these examples, that markets typically find at least some temporary support or resistance at Fibonacci retracement levels. However, because there are many Fibonacci Retracement numbers (.0382, .50, .0618, .0786) which ones do you buy or sell at? Where do you place your stop? Where is your target? It’s important to have specific rules for trading because there will be times when the markets will blow right past these retracement levels.
Managing Risk is extremely important and it is for this reason we’ve created rules for entry, targets and stops.