Combining the Fibonacci with Major Technical Analysis Tools (2024)

FAQs

What is the best combination with Fibonacci retracement? ›

Some of the best combinations for trading with Fibonacci retracement include using other technical indicators such as moving averages, RSI (Relative Strength Index), and MACD (Moving Average Convergence Divergence).

Other popular technical indicators that are used in conjunction with Fibonacci levels include candlestick patterns, trendlines, volume, momentum oscillators, and moving averages. A greater number of confirming indicators in play equates to a more robust reversal signal.

We can create Fibonacci retracements by taking a peak and trough (or two extreme points) on a chart and dividing the vertical distance by the above key Fibonacci ratios. Once these trading patterns​ are identified, horizontal lines can be drawn and then used to identify possible support and resistance levels.

In technical analysis, traders and investors use Fibonacci retracements to identify levels at which an asset's price may experience support or resistance after a price move.

The key Fibonacci retracement levels to keep an eye on are: 23.6%, 38.2%, 50.0%, 61.8%, and 76.4%. The levels that seem to hold the most weight are the 38.2%, 50.0%, and 61.8% levels, which are normally set as the default settings of most forex charting software.

Every foreign exchange trader will use Fibonacci retracements at some point in their trading career. Some will use them just some of the time, while others will apply them regularly.

Scalpers and market timers prefer using 15-minute charts and monthly charts together to find the proper Fibonacci retracements levels. Intraday traders monitor hourly charts throughout the day to avoid any short-term reversals in the Forex market.

Consider the original Fibonacci algorithm: it uses a simple recursive method to calculate Fibonacci numbers, but it runs slowly with a time complexity of O ( 2 n ) . This is where the dynamic programming techniques of memoization and tabulation can be introduced to optimise the function and improve its efficiency.

#3 Fibonacci levels for Take Profits – Fibonacci Extensions

Finally, you can also use Fibonaccis for your take profit orders. Especially the Fibonacci extensions are ideal to determine take profit levels in a trend. The most commonly used Fibonacci extension levels are 138.2 and 161.8.

The 50% retracement level is the most important and tends to be the most reliable. The levels closest to 50% (38.2% and 61.8%) are also reasonably reliable. The outer levels (23.6% and 76.4%) tend to be less reliable. Fibonacci retracement levels work based on self-fulfilling expectations.

How do you take profit with Fibonacci retracement? ›

You can use the Fibonacci retracement levels as a guide to determine the target level. For example, if the price retraces to the 50% level, you can set your target level at the 61.8% level. Using multiple take profit levels can help you maximize your profits.

The MACD is one of the most widely used technical analysis oscillators and can confirm almost perfectly the Fibonacci Retracement levels.

Setting Retracement Grids

Start grid placement by zooming out to the weekly pattern and finding the longest continuous uptrend or downtrend. Place a Fibonacci grid from low to high in an uptrend and high to low in a downtrend. Set the grid to display the 0.382, 0.50, 0.618, and 0.786 retracement levels.

While extensions show where the price will go following a retracement, Fibonacci retracement levels indicate how deep a retracement could be. In other words, Fibonacci retracements measure the pullbacks within a trend, while Fibonacci extensions measure the impulse waves in the direction of the trend.

22.6%, 38.2%, 50%, 61.8% and 78.6% are the most popular and officially used retracement levels. The best time frame to identify Fibonacci retracements is a 30-to-60-minute candlestick chart, as it allows you to focus on the daily market swings at regular intervals.

#3 Fibonacci levels for Take Profits – Fibonacci Extensions

Finally, you can also use Fibonaccis for your take profit orders. Especially the Fibonacci extensions are ideal to determine take profit levels in a trend. The most commonly used Fibonacci extension levels are 138.2 and 161.8.

Best Time Frame For Fibonacci Retracement

But more traders look at the daily time frame over the 1-hour time frame. Here's the point: The daily time frame is the best time frame for Fibonacci retracement levels.