Retracement Trading
How Do I Use Fibonacci in Indices Trading?
A good indices trading retracement strategy to use is the fibonacci retracement indicator. Fibonacci retracement indicator is used by many traders as a retracement strategy indicator.
The fibonacci retracement indicator is placed on a stock chart and this Fibonacci Retracement technical indicator then calculates the retracement levels on the trading charts.
Fibonacci Retracement Strategy Examples on Upward Trend and Downward Trend
How Do I Trade Retracement on Upward Trend
In the Retracement Strategy example explained and illustrated 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 stock price continues heading up in the original upwards trend. Note that this retracement technical indicator is drawn from point 1 to point 2 in direction of the trend (Up-ward Direction).
Because we recognize that this is just a pull-back depending on our chart trend - using this retracement technical indicator, we put a buy order just between the levels 38.2% & 50.0% & our stoploss just below 61.80 % pullback mark. If you had put buy at this point in the trade example explained and illustrated below you would have made a lot of pips after the price retracement reached the Fib 50.0% level and then continued moving in the original upward trend.
How Do I Trade Retracement on Upwards Trend - Retracement Strategy
Explanation for the Above Retracement Strategy Example
Once the price hit the 50.00 percent retracement zone, this pull back provided lots of support for price, & afterward the market then resumed the original upward trend & continued to move upwards.
23.6% retracement level provides minimum support & isn't an ideal place to set a trade transaction order.
38.20% retracement level provides some support but stock price in this example continued to retrace up to the 50 % zone.
50.0% retracement level provides a lot of support & in this example, this was the ideal place which to set a buy trade order.
For this Retracement Strategy example, the price retracement reached the 50.00% retracement zone, but most of time the market will retrace up to 38.2% retracement zone and therefore most of the time traders set their buy limit pending orders at the 38.2% Fibo retracement level, while at same time placing a stop just below 61.8% Fibo retracement level.
How Do I Trade Retracement on Down-wards Trend
In the Retracement Strategy example explained and illustrated below the market is heading down between chart point 1 and chart point 2, then after chart point two the price then retraces up to 38.2% retracement zone then it continues moving downward in original downward trend. Note that this retracement technical indicator is drawn from point 1 to point 2 in direction of the trend (Downwards Direction).
Because we recognize this is just a pull-back depending on the chart trend we put a sell order at 38.20% retracement level and a stop loss order just above 61.80 % retracement level.
If you had put sell order at the 38.2% retracement level as shown on the trade below you'd have made a lot of pips afterwards after the market price reached the 38.2% retracement level & then resumed the downwards trend.
In this trade the pull back of stock price reached 38.2 % retracement zone and did not get to 50.00% retracement level. It's always good to use 38.2 percentage% retracement level because most times price retracement doesn't always get to 50.00 % retracement level.
How Do I Trade Retracement on Downward Trend - Retracement Strategy
Explanation for the Above Retracement Strategy Example
The above Retracement Strategy examples is a retracement trading setup where the price retraces immediately after touching the 38.20% Chart Fib Retracement Level.
This Retracement provided lots of resistance for the price pullback, this was the best place for a trader to set a sell limit order as the market quickly headed downward after hitting this retracement level.
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