Continuing our discussion from yesterday’s post regarding when Fibonacci retracements don’t work, let’s examine the lesson here.
While Fibonacci retracement levels give you a higher probability of success, like other technical tools, they don’t always work.
You don’t know if the price will reverse to the 38.2% level before resuming the trend.
Sometimes it may hit 50.0% or the 61.8% levels before turning around.
Heck, sometimes the price will just ignore Mr. Fibonacci and blow past all the levels.
Remember, the market will not always resume its uptrend after finding temporary support or resistance, but instead continue to go past the recent Swing High or Low.
Another common problem in using the Fibonacci retracement tool is determining which Swing Low and Swing High to use.
People look at charts differently, look at different time frames, and have their own fundamental biases.
It is likely that Stephen from Pipbuktu and the girl from Pipanema have different ideas of where the Swing High and Swing Low points should be.
The bottom line is that there is no absolute right way to do it, especially when the trend on the chart isn’t so clear.
Sometimes it becomes a guessing game.
That’s why you need to hone your skills and combine the Fibonacci retracement tool with other tools in your forex toolbox to help give you a higher probability of success.
In the next lesson, we’ll show you how to use the Fibonacci retracement tool in combination with other forms of support and resistance levels and candlesticks.
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