How to Trade Fibonacci Retracements
Summary
TLDRThis tutorial introduces trading retracements, a technical analysis method for short-term trades. It explains retracements as temporary price corrections within a larger trend, highlighting their potential for profitable trades. The video teaches how to identify retracements using Fibonacci levels, with key levels at 38.2%, 50%, and 61.8%. It advises using these levels for entry points and Fibonacci extensions for setting take-profit targets, while emphasizing the importance of practicing with a demo account and using stop losses to manage risk.
Takeaways
- 📈 **Retracements Defined**: Retracements are short-term price corrections during an overall larger upward or downward movement.
- 💡 **Trading Retracements**: They provide opportunities to enter trades in the original trend direction at better prices.
- 🔍 **Fibonacci Retracement Levels**: Key levels at 38.2%, 50%, and 61.8% are used to identify potential retracement points.
- 📊 **Market Behavior**: Retracements occur as traders take profits, causing a temporary reversal before the trend resumes.
- 📉 **Entry Strategy**: Enter trades after a pullback in an uptrend or a rally in a downtrend, using Fibonacci levels for entry points.
- 🔄 **Trend Continuation**: After a retracement, the original trend's forces often resume, continuing the price movement.
- 🚫 **Risk Management**: Use stop losses placed above or below the retracement level to manage risk.
- 🎯 **Profit Targets**: Use Fibonacci extension levels as potential take-profit levels.
- 📚 **Technical Analysis**: Fibonacci retracements are a method of technical analysis used for short-term trades.
- ⏱️ **Time and Practice**: Mastering retracement trading takes time and practice; use a demo account for testing.
Q & A
What is the main focus of the Trading 22's tutorial series?
-The main focus of the Trading 22's tutorial series is on trading strategies, specifically in this second tutorial, it covers how to trade retracements.
What is suggested for mastering trading strategies?
-It is suggested to take advantage of the free practice account in the Trading 212 Pro platform to test strategies with live prices.
What are retracements in trading?
-Retracements are short-term price corrections during an overall larger upward or downward movement. They are temporary price reversals and do not indicate a change in the direction of the larger trend.
What is the benefit of trading retracements?
-The main benefit of trading retracements is that they provide an opportunity to profit by entering a trade in the original direction of the trend at a better price, just before the continuation of the move.
Why do retracements occur in the market?
-Retracements occur when traders close their positions to take profit after a significant upward movement, causing a temporary sell-off and pullback in the market.
How do you enter a trade in a retracement?
-To enter a trade in a retracement, you should look to enter the market in the direction of the trend right after a pullback has occurred, buying pullbacks in an uptrend and selling rallies in a downtrend.
What are Fibonacci retracement levels?
-Fibonacci retracement levels are horizontal lines that occur when using the Fibonacci retracement tool on a chart, which are automatically calculated by the trading platform and help identify potential support and resistance levels.
What are the most popular Fibonacci retracement levels?
-The most popular Fibonacci retracement levels are 38.2%, 50%, and 61.8%.
How can Fibonacci retracement levels be used as take profit levels?
-Fibonacci retracement levels can be used as take profit levels by identifying potential resistance levels where the price may reverse, allowing traders to exit their trades at a profit.
What is the significance of the 50% Fibonacci retracement level?
-The 50% Fibonacci retracement level is significant because it is around this level that most major moves are expected to retrace, and it can also signal a potential trend reversal if the price moves beyond this level.
How should you place your stop loss when trading retracements?
-When trading retracements, your stop loss should be placed just below the retracement level in an upward trend and just above the retracement level in a downward trend.
What are Fibonacci extension levels and how can they be used?
-Fibonacci extension levels are used as potential take-profit levels for trades in the direction of the trend. They are calculated based on the Fibonacci number sequence and provide reasonable profit targets similar to retracement levels.
Outlines
📈 Introduction to Trading Retracements
This section introduces the concept of retracements as short-term price corrections within a larger trend. It emphasizes the importance of practice and the use of a demo account for strategy mastery. The tutorial explains the benefits of trading retracements, which include profiting from entering trades in the original trend direction at better prices. It also discusses why retracements occur, using an example of an upward trend where traders take profits, causing temporary sell-offs. The section concludes with advice on how to enter a retracement trade by identifying strong upward or downward movements and waiting for a pullback to enter in the direction of the trend. It introduces Fibonacci retracement levels as a tool for identifying entry points.
🚀 Utilizing Fibonacci Retracement and Extension Levels
This section delves into the practical application of Fibonacci retracement levels for entering trades and Fibonacci extension levels for setting profit targets. It advises placing stop losses below retracement levels in a downtrend and above in an uptrend. The tutorial demonstrates using the Fibonacci tool on a chart, showing how to plot retracement levels from a swing high to a swing low. It highlights the popular Fibonacci levels at 38.2%, 50%, and 61.8%, and introduces extension levels at 100%, 138.2%, 161.8%, and 261.8% as potential take-profit levels. The summary stresses the importance of using stop losses and waiting for confirmation signals before entering trades. It concludes with a reminder to be cautious of potential trend reversals and the importance of distinguishing between retracements and reversals.
Mindmap
Keywords
💡Retracement
💡Fibonacci Retracement Levels
💡Swing High and Swing Low
💡Technical Analysis
💡Trend
💡Pullback
💡Fibonacci Extension Levels
💡Stop Loss
💡Take Profit
💡Candlestick
💡Self-fulfilling Prophecy
Highlights
Retracements are short-term price corrections during an overall larger upward or downward movement.
Trading retracements provide an opportunity to profit by entering a trade in the original direction of the trend at a better price.
Fibonacci retracement levels are used to identify potential support and resistance levels.
The most popular Fibonacci retracement levels are 38.2%, 50%, and 61.8%.
Fibonacci extension levels can be used as take profit levels.
Retracements occur when traders take profit, causing a temporary sell-off.
To enter a retracement trade, look for a strong upward or downward movement and enter after a pullback.
Use the Fibonacci retracement tool to draw a line between the swing high and swing low points of a trend.
In an uptrend, buy pullbacks; in a downtrend, sell rallies.
Wait for confirmation that the price will move back into the original trend before entering a trade.
Use additional technical indicators for confirmation to avoid relying solely on Fibonacci retracements.
For an uptrend, place your stop loss just below the retracement level.
For a downtrend, place your stop loss just above the retracement level.
Fibonacci retracement levels can forecast entries into the market, while extensions can be used for profit targets.
Key Fibonacci extension levels are 38.2%, 50%, 61.8%, 100%, 138.2%, and 161.8%.
Use stop losses to minimize risk when trading retracements.
Ensure that the retracement is a temporary reversal and not a new move in the opposite direction.
Transcripts
welcome to trading 22's tutorial series
on trading strategies in this second
tutorial we will go over how to trade
retracements once again keep in mind
that each strategy will take time and
practice to master we suggest you take
advantage of the free practice account
in the trading 212 Pro platform to test
strategy with live
prices in this tutorial you will learn
what retracements are what benefits
trading retracements provide what
Fibonacci retrace M levels are and
finally what Fibonacci extension levels
are and how you can use them as take
profit levels what is a retracement
retracements are short-term price
Corrections during an overall larger
upward or downward movement these price
Corrections are temporary price
reversals and do not indicate a change
in the direction of the larger Trend
finding and trading retracements is a
method of technical analysis used for
short-term trades the main benefit of
trading retracements is that they
provide an opportunity to profit by
entering a trade in the original
direction of the trend at a better price
just before the continuation of the move
why do retracements occur I will
illustrate with an example assuming we
are talking about a large upward Trend a
significant number of Traders start to
buy as they believe the market price
will increase this pushes the market
higher and as more Traders notice the
movement they start buying as well when
the movement has gained traction some
Traders will close their position to
take take profit and this may result in
a temporary sell-off and the market will
pull back and the upward momentum will
be suspended after this the original
forces that formed the trend resume
their activity and the price continues
to rise until the trend has run its
course and reverses so how would you
enter your trade in a retracement what's
first the first thing you need to do is
find a strong upward or downward
movement of a given Financial instrument
to find a good entry position you should
look to enter the market in the
direction of the trend right after a
pullback has occurred put simply you
should buy pullbacks in an uptrend and
sell rallies in a down Trend however how
do we know when the market will pull
back this is where Fibonacci
retracements come in in order to apply
Fibonacci retracement levels to your
chart you need to identify the swing
High and the swing low points of a trend
a swing high is identified as the
highest point displayed on a given time
period a swing low is created when a low
is lower than any other point over a
given time period using the Fibonacci
retracement tool in the trading platform
you draw a line between the swing low
and the swing High the horizontal lines
that occur are the Fibonacci retracement
levels which are automatically
calculated by the trading platform the
most popular Fibonacci retracement
levels are the
38.2% 50% and
61.8% in the trading 212 Pro platform
you have a Fibonacci retracement tool it
places support and resistance levels on
on your chart based on the Fibonacci
numbers there are many theories
mathematical equations and strategies
out there that try to make sense of a
market that is largely speculative
however it is widely accepted among
traders that rely on technical analysis
that most major moves will retrace
around the fibon levels and more
specifically around the 50% level of the
move so in an uptrend a price will
retrace down a certain percentage of the
move before continuing its long upward
movement likewise in a downward trend
the price will move up a certain
percentage before continuing its
long-term downward movement if the price
moves beyond the 50% level it might be a
signal a trend reversal is about to
happen and it may be an opportune moment
for switching the direction of your next
trade in this tutorial we will simply
refer to the Fibonacci retracement tool
and how to use it we will be explaining
the mathematics and more on Fibonacci in
following video tutorials so Traders use
these Fibonacci levels as efficient
entries in the direction of the trend
because many Traders watch these same
levels and place buy sell or stop orders
based on them they are quite accurate
and become self-fulfilling prophecy so
how should you enter in an uptrend you
can use the Fibonacci retracement levels
for an entry into the market for an
entry in an uptrend you should look to
see whether the price finds support at
these levels then we suggest you wait
for confirmation that the price will
move back into the original upward
movement and then enter as with any
technical indicator it is better to seek
additional indications to support your
initial analysis so that you don't base
your trade solely on Fibonacci
retracements look for Clear signals to
buy or sell for instance wait for a
Candlestick to close in the desired
direction to give you more confirmation
on whether you should place an order if
it does form you can place a market
order at this point as you have solid
reasons to believe that this level could
hold how to enter in a downtrend
likewise for a downward Trend you can
place your entry after the price has
found resistance at one of the Fibonacci
levels after you wait for confirmation
that the price will move back into the
original downward Trend you can place
your entry
order so how to place your exit now that
you have decided on your entry you need
to determine your exit strategy your
exit strategy is comprised of two steps
first one is deciding where to place
your stop loss and the second is where
to place your target profit let's look
at the same graph that we had for our
upward Trend here we suggest you place
your stop loss just below the
retracement level in a downward Trend we
suggest you place your stop loss just
above the retracement level where should
you take profit and now for the best
part your target profit if we use
Fibonacci retracement levels to forecast
entries into the market we can use
Fibonacci extensions as reasonable
profit targets Fibonacci extensions make
good potential take-profit levels for
trades in the direction of the trend
similar to the retracement levels the
key Fibonacci extension levels are 38.2%
50%
61.8% as well as 100 138.236.128.7
[Music]
to demonstrate how to use the Fibonacci
retracement tool here we have opened the
chart for the German index Dax in a
Candlestick mode at a 1our time interval
the Price's movement is easily
recognizable in the trading 212 platform
on the side you have a Fibonacci icon
when you click it you choose
retracements then you click right where
the trend begins and drag until you
reach the end of the movement where the
move started you'll see a 100 displayed
on the side and where it ends a zero
when you have plotted this line the
Fibonacci tool automatically places the
retracement levels based on the
Fibonacci number sequence in our case
here you see a retracement at 38.2% and
we would enter at this
level we would then place our stop below
the entry level you could place it
either below the 50% or the 61.8% level
we will take the first Fibonacci
extension level at 6 1.8% as a
reasonable Target
profit to summarize a retracement is a
short-term price correction during a
overall long-term upward or downward
Trend the benefit to trading
retracements is that they provide an
opportunity to profit by entering a
trade in the original direction of the
trend at a better price the basis of the
trading strategy is to buy pullbacks in
an uptrend and sell rallies in a
downtrend a good way of identifying them
is to use Fibonacci retracements to set
your take profit you can use the
Fibonacci extensions as reasonable
profit targets as always we recommend
you use stop losses they can be placed
above or below the last retracement
level what to watch out for each
strategy has its risks when trading
retracements make sure that it is a
temporary reversal and not a new move in
the opposite direction this would
essentially be a reversal not a
retracement and would incur a loss for
the Trader who's placing orders with the
original move we will discuss reversals
in our next tutorial on trading
strategies thank you for watching this
tutorial on trading retracements we wish
you successful trading with trading 212
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