Student’s Question:I’d appreciate a quick review of Fib line basics…confused…thanks.Instructor’s Response:Sure…We put Fib levels on a chart so a basic determination can be made as to the point which a currency pair is likely to retrace after a strong move.Take a look at the chart below. A bullish move is shown on the chart so the Fib line would be drawn from the bottom of the move (Swing Low) to the top of the move (Swing High)…the opposite would be true in a move to the downside.
Having done this, the three major Fib levels will be appear on the chart…38.2%, 50.0% and 61.8%. A trader will then wait to see if one of the levels holds…that is, price action stalls at that level. Should one level hold, a long position can be taken back in the direction of the original move with a stop below the lowest wick that penetrated the Fib level that held.
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