How Do You Read a Forex Retracement on a Downward Trend?

How Do You Trade a Forex Retracement on a Downward Trend?

The Fib retracement levels tool indicator is placed on a forex chart in an downward trend & this Fib retracement levels tool then calculates the price retracement levels for the downward trend on the chart. Fibonacci retracement levels forex tool is used by many traders as a forex retracement trading indicator.

In the Fib Retracement Strategy example below the price is moving down between chart point 1 & chart point 2 - then after chart point 2 the price then retraces up to 38.2% Fib retracement level and then it continues moving downwards in the original downwards trend direction. Note that this Fibo retracement levels indicator is plotted from chart point 1 to chart point 2 in direction of the Forex trend (Downwards Trend Direction).

Because we know that this is just a forex price pullback based on the trend we put a forex sell order at 38.2% Fibonacci price retracement level and a stop loss order just above 61.8% Fibonacci price pullback level.

In this forex example the price retracement reached 38.2% Fibonacci price retracement level and did not get to 50.0% Fibonacci price retracement level. Many traders use 38.2% Fibonacci price retracement level because most times the price retracement does not always get to 50.0% Fibonacci price pullback level.

How Do You Read a Forex Retracement on a Downward Trend?

Explanation of Fibo Retracement Strategy Example

The Fibo Retracement Strategy example above is a Fib retracement trading set up where the price retraces immediately after touching the 38.20% Fibonacci price pullback level.

38.2% Fib Retracement area provided a lot of resistance for the price retracement - this was the best point for a trader to place a forex sell limit order as the price quickly moved down after hitting this 38.2% Fib retracement level.

How Do You Read a Forex Retracement on a Downward Trend?