FOREX BLOG

There are a wide range of forex strategies used by traders to make trading decisions. Each forex strategy may have its own traits. For example, breakout strategy, referred in my previous article, is quite an appropriate strategy that takes advantage of breakouts to get into a trade. And here in this article, I will introduce some other forex strategies on how to trade with Fibonacci retracement levels.

Fibonacci retracement levels, which I’ve talked about in detail in my last article, are used by traders as potential support and resistance levels. The basic idea is go long on a Fibonacci retracement when the forex market is in its uptrend, and do the opposite in its downtrend. However, to use the Fibonacci tool well is a skill that you should hone in practice. Below are the forex strategies for it:

Forex strategies to use Fibonacci retracement levels No.1: Do not over rely on it

Back in my last article Support and Resistance: Basic Technical Analysis of Forex Chart, we said that support and resistance levels do not always hold. Well, this also applies to Fibonacci.

For example, generally in an uptrend, when the price of a currency retraces from the recent swing high, it will find support at one of the five Fibonacci levels (0.236, 0.382, 0.500, 0.618, and 0.764), and resume its upward move. So buying at the level will make a potential profit. However, when the Fibonacci fails to work, the market will not resume its uptrend after finding temporary support, but continue to go down the recent Swing High instead. Then if you long, you will regret for the losses.

Therefore, don’t over rely on single tool. This is a forex strategy that always makes sense.

Forex strategies to use Fibonacci retracement levels No.2: Combine the Fibonacci tool with other tools in your forex toolbox

As it’s not safe to use just one tool, you need to combine the Fibonacci tool with other tools in your forex toolbox to help give you a higher probability of success. Support and resistance levels, trend lines and candlesticks will be good choices.

Forex strategies to use Fibonacci retracement levels No.3: Determine swing high and swing low

As we said in my last article, to draw Fibonacci retracement level, you have to find the recent significant Swing High and Swing Low. However, People look at charts differently, look at different time frames, and have their own fundamental biases. They may have different ideas of where the Swing High and Swing Low points should be. Actually, there is no absolute right way to do it, especially when the trend on the chart isn’t so clear. So you need to hone your skills to find the suitable ones.

The above are the three major forex strategies to use Fibonacci retracement levels. Hope it offers you help. To know more about forex strategies, please refer to our forex blog.