# Plotting fibonacci retracement levels, What Are Fibonacci Retracements and Fibonacci Ratios?

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Fibonacci retracement levels are horizontal lines that indicate the possible support and resistance levels where price could potentially reverse direction. The first thing you should know about the Fibonacci tool is that it works best when the market is trending. The idea is to go long or buy on a retracement at a Fibonacci support level when the market is trending UP.

Fibonacci Retracements Introduction Fibonacci Retracements are ratios used to identify potential reversal levels.

And to go short or sell on a retracement at a Fibonacci resistance level when the market is trending DOWN. Fibonacci retracement levels are considered a predictive technical indicator since they attempt to identify where price may be in the future.

The theory is that after price begins a new trend direction, the price will retrace or return partway back to a previous price level before resuming in the direction of its trend.

Then, for downtrends, click on the Swing High and drag the cursor plotting fibonacci retracement levels the most recent Swing Low. For uptrends, do the opposite.

Click on the Swing Low and drag the cursor to the most recent Swing High. Got that?

Here we plotted the Fibonacci retracement levels by clicking on the Swing Low at. The charting software magically shows you the retracement levels.

As you can see from the chart, the Fibonacci retracement levels were.

Price pulled back right through the It even tested the Later on, around July 14, the market resumed its upward move and eventually broke through the swing high. Clearly, buying at the As you can see, we found our Swing High at 1.

The retracement levels are 1. The market did try to rally, stalled below the If you had some orders either at the In these two examples, we see that price found some temporary forex support or resistance at Fibonacci retracement levels.

Because of all the people who use the Fibonacci tool, those levels become self-fulfilling support and resistance levels. Plotting fibonacci retracement levels enough market participants believe that a retracement will occur near a Fibonacci retracement level and are waiting to open a position when the price reaches that level, then all those pending orders could impact the market price. If they were that simple, traders would always place their orders at Fibonacci retracement levels and the markets would trend forever.

By Alan Farley Updated Dec 7, Fibonacci retracement and extension analysis uncovers hidden support and resistance created by the golden ratio.