How do you use Fibonacci retracement to enter a trade?

 

Fibonacci retracement is a technical analysis tool that uses horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before the price continues to move in the original direction. To use Fibonacci retracement in trading:

Identify the high and low points in the price trend you want to analyze.

1.     Divide the vertical distance between the high and low points by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

2.     Plot the horizontal lines at the levels derived from step 2, starting from the low point to the high point.

3.     Observe where the price action approaches or reaches one of the levels, as this can be an indication of support or resistance.

4.     Consider entering or exiting a trade based on the price action near the key levels and other technical or fundamental analysis.

Remember that Fibonacci retracements are just one of many tools used in technical analysis and should not be relied upon solely for making trading decisions.

The "best" settings for Fibonacci retracement in daily trading can vary based on individual trader preferences and the specific market being traded. However, the commonly used levels are the 23.6%, 38.2%, 50%, 61.8%, and 100% retracements. These levels are derived from the key Fibonacci ratios and are believed to indicate potential areas of support and resistance in the market.

It's important to keep in mind that Fibonacci retracements should not be used in isolation, but rather in conjunction with other technical and fundamental analysis to make informed trading decisions. Additionally, it's crucial to understand that no single tool or indicator can guarantee success in the markets, and that traders should always be prepared for the possibility of losses.