There are a variety of technical analysis and indicators that can be used by many traders, one of which is the popular forex indicator Fibonacci retracement. Interestingly, this indicator uses the theory of a series of numbers that was invented more than 700 years ago.
 
Quoting from investopedia.com that Fibonacci is a horizontal line indicator used by traders to indicate support and resistance points that will occur. The Fibonacci indicator is useful for drawing a level line between two price points so that it can determine when you enter the market to make a profit and avoid Lose. 

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Why can the Fibonacci sequence theory be used for forex trading?

The name Fibonacci Indicator is taken from the name Leonardo da Pisa or better known as Leonardo Fibonacci, is an Italian mathematician. He found a series of simple numbers that were then used as ratios to explain various natural events. Fibonacci ratios start from simple rows of numbers such as: 0,1,1,2,3,5,8,13,21,34,55,89,144, and so on. 
 
To get this number, the method is very easy. Starting from the first two numbers, when added up, you will get the third number, 0+1=1, 1+1=2, 1+2=3, and so on. Uniquely, if you divide one of the numbers by the next number, you will get a decimal number of 0.618 (after rounding), for example 34:55=0.618.  However, if you divide one of the numbers in the Fibonacci sequence by the previous number, you will always get the same result, which is 1.625 or 1.62 (after rounding).

Example 55:34=1.62. These numbers are called the golden ratio. Then, how can a series of Fibonacci numbers be used in forex trading? In the world of forex trading, Fibonacci retracement is an analysis tool that relies on a technical approach and is developed from the ratio between numbers in Fibonacci numbers. This indicator is very popular among forex traders.

With a simple similar theory, the Fibonacci forex indicator uses a specific sequence of numbers. In practice, technical analysis using Fibonacci is carried out by drawing lines to connect two extreme points on the asset price chart, namely the high and low. After that, the trader divides the vertical distance between the two extremes based on the Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100% and generates a horizontal line that marks the potential support and resistance levels in the previous and subsequent price movements. 

Simply put, the Fibonacci retracement indicator is a technical analysis that helps traders to find potential support and resistance levels and is used to determine profit (TP) and stop loss (SL) targets.  If you ask if the understanding of the forex Fibonacci retracement indicator above is the same as the stock Fibonacci retracement. The answer is the same. Now below we enter the discussion of how to set the Fibonacci retracement indicator in Forex trading, before reading it, let's follow the Trader Assessment! Traders can consult trading, after filling it out.

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Miscellaneous Fibonacci Technical Indicators

Learn How to Draw the Right Fibonacci for Trading

How to set the Fibonacci retracement indicator?

For beginner traders, setting up the Fibonacci indicator may seem complicated, you can follow the following method.

1. Open your Metatrader platform 

Choose the chart view of the currency pair and timeframe. You should note that Fibonacci is more suitable for use on the 1H (hourly) or higher timeframes. If you want to scalp on a lower timeframe, use another indicator.

2. Keep an eye on price movements

On the price chart, pay attention to the price movement, then find the last highs and lows of the price reversal points.

3. Setting Indikator Fibonacci retracement 

First go to the 'Chart/Chart Menu' on your trading platform, then click on 'Insert', select 'Objects', then 'Fibonacci'. There are several Fibonacci options that have different functions. For starters, select 'Fibonacci Retracement'.  Then, the way to pull the Fibonacci retracement is to bring the cursor over the chart, click on the highest or lowest price point on the left side, then bring the cursor over the highest or lowest price point on the right side

How to use Fibonacci in forex trading?

To be able to find Fibonacci levels, traders must first be able to find the highest and lowest point prices. These points are referred to as swing highs and swing lows, respectively.  A swing high is the moment when the price movement at that time is in an uptrend position and all you need to do is draw a Fibonacci line from a swing low to a swing high.
 
While the swing low is the moment when the price movement at that time is in a downtrend position (downtrend condition) and all you need to do is draw the Fibonacci line from the swing high to the swing low.  As you already know, there are six Fibonacci retracement levels, namely the 0.0%, 23.6%, 38.2%, 50%, 61.8%, and 100% levels. Among these levels, the most popular Fibonacci levels are the 38.2%, 50%, and 61.8% levels.

In the range of one of the three levels, it will often give a buy or sell signal with a fairly high level of accuracy.  Did you know that the 50% level does not come from the Fibonacci ratio? However, many traders consider that this level is considered the most important. Why? Because price movements at that level have a tendency to continue in a certain direction after passing it. 
 
If the price breaks the 50% level pointing upwards, then the price is likely to reach the 0.0% level. On the other hand, if the price manages to break through the 50% level to the downside, then the price will slump to the 100% level. The basic concept of using Fibonacci retracements is to look for buying opportunities when the price is in the support range and looking for sell opportunities when the price is in the resistance range.

Tips for successfully using the Fibonacci retracement indicator

1. Determine the point of the Fibonacci retracement line

 There are two options when you draw a Fibonacci line. First, Fibonacci is drawn from one candle wick to another. Second, you can connect the Fibonacci lines from one body candle to another.  If you draw from wick to wick, it means that you are using the high and low prices as a benchmark. Meanwhile, the retracement between the body candles allows you to use the open and close prices as a reference. Withdrawal must always be consistent axis to axis or body to body and cannot be alternated, for example from axis to body or body to axis.  

2. Also use with other indicators

Doing forex analysis with just one tool is not enough. Traders are still advised to use other indicators to obtain accurate forex trading signals. Combine the Fibonacci indicator with other indicators.

3. Avoid small trading timeframes

Choosing a timeframe type is usually tailored to your trading strategy preferences. However, choosing a super small timeframe like M1 will not be ideal for forex analysis with Fibonacci. Too fast a price movement will make the signal from the Fibonacci retracement very difficult to read.

Function of the Fibonacci Retracement Indicator

Fibonacci is an indicator that can be used on several trading instruments such as buying and selling foreign currencies or also known as Forex, Crypto, Commodities and stocks. There are advantages and disadvantages to each asset. In general, the functions of the Fibonacci Retracement indicator are:   
  • Determining the stop loss level
  • Placing entry orders
  • Set a target price
  • Identification of price levels is quick and easy because Fibonacci Retracement levels are static, unlike moving averages
 

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