Fibonacci method in Forex
Forex trading with Fibonacci method. Mini-lesson on how to use Fibonacci
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How to calculate Fibonacci retracement and extension levels
Three most used Fibonacci retracement levels are 0.382 or 38.2%, 0.500 (50%) and 0.618 (61.8%).
Three most used Fibonacci extension levels are 0.618, 1.000 and 1.618. Also 1.382 extension can be applied as well.
Let's take a look at the next picture:
In the example above we are in the uptrend. Lowest swing — point A — is 120.75;
To calculate retracement levels and enter Long at some point C we do next:
Calculations for Uptrend and Buy order:
B — A = ?
0.382 (38.2%) retracement = 121.44 — 0.69 x 0.382 = 121.18
Fibonacci retracement levels formula for an uptrend:
C = B — (B — A) x N%
Now we need to calculate extension levels:
0.618 (61.8% ) extension = 121.44 + 0.69 x 0.618 = 121.87
Fibonacci extension levels formula for an uptrend:
D = B + (B — A) x N%
Highest swing — point A — is 158.20; lowest swing — point B — is 156.44.
Calculations for downtrend and Sell order:
A — B = ?
Because of the downtrend we need to add to the lowest point B to find retracement.
0.382 (38.2%) retracement = 156.44 + 1.76 x 0.382 = 157.53
Fibonacci retracement levels formula for downtrend:
C = B + (A — B) x N%
Now let's find Fibonacci extension levels (downtrend):
0.618 (61.8%) extension = 156.44 — 1.76 x 0.618 = 155.35
Fibonacci extension levels formula for downtrend:
D = B — (A — B) x N%
To help calculate Fibonacci levels we have also made a free tool for Forex traders — Free Fibonacci Calculator — available for downloading.