Fibonacci Trading - A Simple Application

Fibonacci trading is a huge topic. I have relied on it very much in my years of successful forex trading, although not in isloation. It helps me reinforce my trading signals. To me, it’s most useful in anticipating where retracements will likely find support and resistance.

First off, let me talk about a simple application. See the attached charts.

First, we must identify a “Swing Low” and a “Swing High” before we can generate Fibonacci retracement levels.

a) A Swing High is a short term high bar with at least two lower highs on both the left and right of the high bar.

b) A Swing Low is a short term low bar with at least two higher lows on both the left and right of the low bar.

The attached chart should make these 2 points quite clear.

After that, you can generate Fibonacci retracement levels by clicking on a significant Swing High and dragging the cursor down to the most recent potential Swing Low, as illustrated below. The displayed Fibonacci levels are potential resistance levels where you could potentially place short trades.

If the dominant trend is up, we generate Fibonacci Support levels, where downward retracements are likely to find support.