What is a Forex Retracement Strategy? - Forex Retracement Trading Strategy
How Do You Use Fibonacci in Forex Trading?
A good forex retracement strategy to use is the fibonacci retracement indicator. Fibonacci retracement indicator is used by many traders as a forex retracement strategy indicator.
The fibonacci retracement indicator is placed on a forex chart and this Fibonacci Retracement indicator then calculates the retracement levels on the forex charts.
Fib Retracement Strategy Examples on Upward Forex Trend and Downwards Trend
How to Trade Retracement on Upwards Forex Trend - Forex Retracement Strategy
In the Forex 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% retracement level then price continues moving up in original upwards trend. Note that this retracement indicator is drawn from point 1 to point 2 in direction of the Forex trend (Upwards Direction).
Because we know this is just a retracement based on our forex 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 upwards trend.
How to Trade Retracement on Upwards Forex Trend - Forex Retracement Strategy
Explanation for the Above Forex Retracement Strategy Example
Once the price hit the 50.00% retracement level, this retracement level provided a lot of support for price, & afterward forex market then resumed the original upwards trend & continued to move upward.
23.60% retracement level provides minimum support & isn't an ideal place to set a forex order.
38.2% retracement level provides some support but price in this example continued to retrace up to the 50% zone.
50.00% retracement level provides a lot of support & in this example, this was the ideal place to set a buy forex order.
For this Forex Retracement Strategy example, the price retracement reached the 50.0% retracement level, but most of the time the market will retrace up to 38.2% retracement level and therefore most of the time forex traders set their buy limit orders at 38.2% Fibo retracement level, while at same time placing a stop just below 61.8% Fibo retracement level.
How to Trade Retracement on Downward Forex Trend - Forex Retracement Strategy
In the Forex Retracement Strategy example below the forex market is heading downwards between chart point 1 and chart point 2, then after chart point 2 the forex price then retraces up to 38.2% retracement level then it continues heading downwards in the original downwards trend. Note that this retracement indicator is drawn from point 1 to point 2 in direction of the Forex trend (Downwards Direction).
Because we know this is just a retracement based on the forex chart trend we put a sell order at 38.2% retracement level and a stop loss just above 61.8% retracement level.
If you had put sell order at the 38.2% retracement level as shown on the trade below you would have made a lot of pips afterwards after the price reached the 38.2% retracement level and then resumed the downward forex trend.
In this trade the retracement of price reached 38.2% retracement level & did not get to 50.0% retracement level. It is always good to use 38.20% retracement level because most times the price retracement does not always get to 50.00% retracement level.
How to Trade Retracement on Downwards Forex Trend - Forex Retracement Strategy
Explanation for the Above Forex Retracement Strategy Example
The above Forex Retracement Strategy examples is a forex retracement trading set up where the price retraces immediately after touching the 38.20% Fibonacci Retracement Level.
This Forex Retracement level provided a lot of resistance for the price retracement, this was the best place for a trader to set a sell limit pending order as a market quickly moved down after hitting this retracement level.
