Indices 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 indices traders as a indices trading retracement strategy trading indicator tool.

The fibonacci retracement indicator is placed on a stock indices chart and this Fibonacci Retracement indicator then calculates the retracement levels on the stock indices charts.

Fibonacci Retracement Strategy Examples on Upward Indices Trend and Downward Indices Trend

How to Trade Retracement on Upward Indices Trend

In the Indices Retracement Strategy example explained and illustrated below the stock indices price is moving up between chart point 1 and chart point 2 then after chart point 2 it retraces down to 50.0% retracement level then stock indices price continues moving up in the original upward indices trend. Note that this stock indices retracement indicator is drawn from point 1 to point 2 in the direction of the indices trend (Upward Direction).

Because we know this is just a retracement based on our chart indices 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 explained and illustrated below you would have made a lot of pips after the stock indices price retracement reached the Fibonacci 50.0% level and then continued moving in the original upward indices trend.

How to Trade Retracement on Upward Indices Trend - Indices Retracement Strategy

Explanation for the Above Indices Retracement Strategy Example

Once the stock indices price hit the 50.0% retracement level, this retracement level provided a lot of support for the indices price, and afterwards the stock indices trading market then resumed the original upward indices trend and continued to move up.

23.6% retracement level provides minimum support and is not an ideal place to place a stock indices order.

38.2% retracement level provides some support but stock indices price in this example continued to retrace up to the 50% zone.

50.0% retracement level provides a lot of support and in this example, this was the ideal place to place a buy stock indices order.

For this Indices Retracement Strategy example, the stock indices price retracement reached the 50.0% retracement level, but most of the time the stock indices trading market will retrace up to 38.2% retracement level and therefore most of the time indices traders set their buy limit indices orders at the 38.2% Fibonacci retracement level, while at the same time placing a stop just below 61.8% Fibonacci retracement level.

How to Trade Retracement on Downward Indices Trend

In the Indices Retracement Strategy example explained and illustrated below the stock indices trading market is moving down between chart point 1 and chart point 2, then after chart point 2 the stock indices price then retraces up to 38.2% retracement level then it continues moving downward in the original downward indices trend. Note that this stock indices retracement indicator is drawn from point 1 to point 2 in the direction of the indices trend (Downward Direction).

Because we know this is just a retracement based on the chart indices 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 stock indices price reached the 38.2% retracement level and then resumed the downward indices trend.

In this trade the retracement of stock indices price reached 38.2% retracement level and did not get to 50.0% retracement level. It is always good to use 38.2% retracement level because most times the stock indices price retracement does not always get to 50.0% retracement level.

How to Trade Retracement on Downward Indices Trend - Indices Retracement Strategy

Explanation for the Above Indices Retracement Strategy Example

The above Indices Retracement Strategy example is a stock indices retracement trading setup where the stock indices price retraces immediately after touching the 38.2% Stock Indices Chart Fibonacci Retracement Level.

This Indices Retracement level provided a lot of resistance for the stock indices price retracement, this was the best place for a indices trader to place a sell limit indices order as the stock indices trading market quickly moved down after hitting this retracement level.