In order to find these Fibonacci retracement levels, find the recent significant Swing Highs and Swings Lows.
Then, for downtrends, click on the Swing High and drag the cursor to 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.
Now, let’s take a look at some examples of how to apply Fibonacci retracement levels to the currency markets.
This is a daily chart of AUD/USD.
Here we plotted the Fibonacci retracement levels by clicking on the Swing Low at .6955 on April 20 and dragging the cursor to the Swing High at .8264 on June 3.
The charting software automatically calculates and shows you the retracement levels.
As you can see from the chart, the Fibonacci retracement levels were .7955 (23.6%), .7764 (38.2%), .7609 (50.0%*), .7454 (61.8%), and .7263 (76.4%).
Now, the expectation is that if AUD/USD retraces from the recent high, it will find support at one of those Fibonacci retracement levels because traders will place buy orders at these levels as the price pulls back.
*The 50.0% ratio is not officially a Fibonacci ratio, but it could sneak into the group and has never left.
Now, let’s look at what happened after the Swing High occurred.
Price pulled back right through the 23.6% level and continued to shoot down over the next couple of weeks.
It even tested the 38.2% level but could not close below it.
Later on, around July 14, the market resumed its upward move and eventually broke through the swing high.
Clearly, buying at the 38.2% Fibonacci level would have been a profitable long-term trade!
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