How Do I Analyze Retracement Technical Indicator Strategy?
How Do You Trade Retracement Technical Indicator Strategy?
A good price retracement strategy to use is the fibonacci retracement indicator. Fibonacci retracement indicator is used by many traders as a price retracement strategy indicator tool.
The fibonacci retracement indicator is placed on a chart and this Fibonacci Retracement indicator then calculates the price pull back zones on the trading charts.
Fib Retracement Strategy Examples on Upward Trend and Down-wards Trend
FX Retracement Strategy
In the Retracement Strategy example below the price is moving up between chart point 1 & chart point 2 then after chart point 2 it retraces down to 50.0% price retracement level then price continues moving up in original upwards trend. Note that this price retracement indicator is drawn from point 1 to point 2 in direction of the trend (Upwards Direction).
Because we recognize that this is just a pullback depending on our chart trend - using this retracement indicator, we put a buy order just between the levels 38.2% and 50.0% and our stop loss just below 61.8% pull back mark. If you had put a buy at this point in the trade example below you would have made a lot of pips after the price retracement reached the Fibonacci 50.0% level and then continued moving in the original upward trend.
How Do You Trade Price Retracement on Upward Trend
Explanation for the Above Retracement Strategy Example
Once the price hit the 50.0% price pull back level, this price retracement level provided a lot of support for the price, and afterward market then resumed the original upwards trend and continued to move upward.
23.6% price retracement level provides minimum support and is not an ideal place to set a order.
38.2% price retracement level provides some support but price in this trading example continued to retrace up to the 50% zone.
50.0% price retracement level provides a lot of support and in this trading example, this was the ideal place to put a buy order.
For this Retracement Strategy example, the price retracement reached the 50.0 % price pull back level, but most of time the market will retrace up to 38.2 % price retracement level and therefore most of the time traders set their buy limit orders at 38.2% Fibonacci price pull back level, while at the same time placing a stop just below 61.8% Fib price pull back level.
Forex Retracement Strategy
In the Retracement Strategy example below the market is moving downwards between chart point 1 & chart point 2, then after chart point two the price then retraces up to 38.2% price retracement level then it continues moving downwards in the original downward trend. Note that this price retracement indicator is drawn from chart point 1 to chart point two in direction of the trend (Down-wards Direction).
Because we know this is just a price pull back depending on the chart trend we put a sell order at 38.2% price retracement level and a stop loss just above 61.8% price retracement level.
If you had put sell order at the 38.2% price retracement level as shown on the trade below you would have made a lot of pips afterwards after the price reached the 38.2% price retracement level and then resumed the downward trend.
In this trade the price pull back of price reached 38.2% price retracement level and did not get to 50.0% price retracement level. It is always good to use 38.2% price retracement level because most times the price retracement doesn't always get to 50.0 % price pull back level.
How Do You Trade Retracement on Downward Trend
Explanation for the Above Retracement Strategy Example
The above Retracement Strategy example is a price retracement trading set up where the price retraces immediately after touching the 38.20% Fibonacci Retracement Level.
This Retracement provided lots of resistance for the price pull back, this was the best place for one to set a sell limit order as a market quickly headed down after hitting this price pull back level.
How Do I Analyze Retracement Technical Indicator Strategy?
