Fibonacci Studies

Fibonacci Retracement - During a trend, currency prices typically retrace (move temporarily against the dominant trend) before resuming the move in the original direction. These countertrend moves frequently fall into predictable percentage ranges. Day traders and swing traders typically look at these percentage retracements as opportunities to enter the market in the direction of the original trend. The most commonly traded retracement is the the 50% countertrend move. There are also maximum and minimum retracement percentages of approximately 62% and 38% that are commonly used by currency traders. These three figures are based on the three most common Fibonacci ratios, 38.2%, 50%, and 61.8%. Using our free trading software, a trader can display the Fibonacci Retracement percentages by clicking the button shown below and selecting (clicking) two extreme points on the chart (labeled with two small, red squares in the picture below). The Fibonacci levels will be displayed in green as three (3) horizontal line segments labeled with prices that represent 38.2%, 50%, and 61.8% of the original selected range. The numbers are also displayed on the upper left hand corner of the chart.

Example (see picture below): After a move of 10.5 yen from April (USD/JPY = 133.50) until late May (USD/JPY = 123), a trader selects the extreme points labeled in red to find the Fibonacci retracement numbers. The results are shown below in green (approximately 129.57, 128.28, 126.99). He interprets his findings as follows: The Dollar-Yen is on a downtrend for about two month, but the current rally can go up to 126.99 (the 38% Fibonacci number), 128.28 (the 50% ratio), or 129.57 (the 62% of the original 10.5 yen drop) before encountering resistance and resuming its two month decline. Therefore, if the price goes up to any of these levels and shows any sign of weakness, I will enter a short position in the USD/JPY. [This is just an example of a typical use of the Fibonacci numbers.]

Fibonacci Projection - The purpose of the Fibonacci Projection is to estimate where the current move of currency may end. To calculate the Fibonacci projection using the currency platform, a trader needs to click on the button shown below, then click on the beginning and end of the initial move (points number 1 and 2 in the picture below), and finally click on the beginning of the move that needs to be projected. When the three points are selected, three blue lines (look below) are displayed corresponding to the Fibonacci projection values of 61.8 %, 100% and 161.8% of the first move. These number are also shown on the top left portion of the chart. [Lines that are off scale will not be visible on the chart. Note that in the example below, the 161.8% line is not displayed.]

Erasing Fibonacci studies - To remove the Fibonacci studies from the graph, press the button shown below.