Drawing Fibonacci Pullback Levels on Upwards and Downwards XAUUSD Gold Trend

The price of a Gold metal does not move upwards or downwards in a straight line. Instead price of XAUUSD moves up/down in a zigzag manner. Fibonacci Retracement is the tool used to calculate/estimate where the zigzag will stop. The pull back levels are 38.2 %, 50% and 61.8%. These form the points at which the market is likely to make a retracement.

What is a retracement? A retracement is a retracement of the price before the market resumes original and initial trend/original and initial direction of movement.Explanation of Zigzag Movement: The Example below shows price heading up in a zigzag manner.

The diagram below shows this movement in an upwards trending market.

1-2: Price moves up 2-3: Pull-back 3-4: Moves up 4-5: Pull-back 5-6: Moves up

Since we can spot where a retracement starts on a Gold price chart, how do we know where these pull-back/retracements will reach?The answer is we use Fib retracement levels

This is a type of line study used in XAUUSD trading to predict and calculate the price retracement areas. This xauusd indicator is placed directly on the price chart within the trading platform provided by your online broker, This Fib retracements indicator then will mechanically/automatically calculate the retracement levels on the trading chart.

What are the Fib Retracement Levels?

23.6 % Fib retracement38.2% Fib retracement50.0 % Fib retracement61.8% Fib retracement

38.2 % & 50.0 % Retracement Levels are the most frequent used & most of the times this is where the pull back will reach and get to - with 38.2 % Fib retracement level being the most liked and the most widely used.

61.8% Fib retracement level is also commonly used to set stop losses for trade transactions opened using this strategy - because price retracement won't get to this retracement level most of the times.

This Fib retracements tool will be drawn in the market direction of the Gold price trend as expounded in the examples below.

How to Draw Fibonacci Retracement Levels on an Upward Market Trend

In the diagram below the XAUUSD Gold price is heading up between 1 & 2 then after 2 it retraces downward to 50.00 % Fib retracement level pull back area then it continues moving up in the original and initial upwards trend. Notice that this indicator is drawn from point 1 to 2 in the market direction of the Gold price trend (Upwards trend).

Because we know this is just a retracement/pullback based on our using this trading indicator - Fib retracement level, we put a buy order just between the levels 38.2% & 50.00 % retracement levels and our stop loss just below 61.80 % pull back level. If you had put a buy at this point in the trade example below you would have made a lot of pips as shown below.

Fib Retracement Levels Drawn on an Upward Gold Market Trend

Explanation for the Above Fib Retracement Setup Trade Example

Once the Gold price hit the 50.0 percent Fib retracement level, this zone/level provided a lot of support for the price, & afterwards the market then resumed the original upward trend & continued to move up.

23.6 % Fib retracement level provides minimal support and isn't an ideal place to open an order.

38.2 % Fib retracement level provides some support but price in this example continued to retrace upto 50 percentage retracement level. Most of the times traders will place their buy limit orders this level- 38.2 % Fib retracement.

50.0 % Fib retracement level provides a lot of support and in this example, this was the ideal place to place a buy order.

For this exemplification, the retracement reached the 50.0 percentage pull back area, but most of the time the market will retrace up to 38.2 % and therefore most of the times traders set their buy limit orders at the 38.2 % Fib retracement level, while the same time placing their stop loss order just below 61.8 % Fib retracement.

How to Draw Fibonacci Retracement Levels on a Downward Market Trend

In the diagram below the market is moving down between 1 and 2, then after 2 it retraces up to 38.2% Fib retracement level & then it continues heading down in the original downward trend. Notice that this Fibonacci retracement indicator is drawn and plotted from point 1 to 2 in the direction of the Gold price trend (Downward trend).

Because we know this is just a retracement we put a sell order at 38.2% Fib retracement level & a stop loss just above 61.80% Fib retracement.

If you had put a sell order at the 38.2 % Fib retracement level just as is displayed on the trade below you would have made a lot of pips afterwards. In this trade the retracement reached 38.2% Fib retracement level & did not get to 50.00 % Fib retracement. From experience it's always good to use 38.2% Fib retracement level when trading Gold metal because most times the pull-back doesn't always get to 50.00 % retracement mark.

Fib Retracement Levels Drawn on a Downward Gold Market Trend

Explanation for the Above Fibonacci Retracement Setup Trade Example

The above example is the perfect setup where the price retraces immediately after touching the 38.2 % Fib retracement.

This Fib retracement level provided a lot of resistance for the price pull-back: this was the best place for a trader to place a sell limit order as the market quickly headed down after touching this 38.2 % Fib retracement. For this trade a trader would have put their stop loss at the 61.8 % Fib retracement.

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