Fibonacci is a mathematical technique that was invented by Leonardo Pisano in the 13th century. The numbering technique has been reshaped and improved over the years but the concept has never changed.

Fibonacci retracements in forex trading is a crucial technical indicator that focuses on two main trading points, the peak and the troughs. The peak and trough values are used in creating the retracement levels through their division with the Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%.

What Fibonacci Retracements Informs Traders

The Support and Resistance Levels

Finding a consistent currency pair in forex trading is among some of the most difficult tasks in forex trading. The unpredictability nature of forex trading makes it difficult to arrive at consistent currency pairs.

Support and resistance level are both important components and parameters of the Fibonacci retracements. The resistance level is a measure of how the forex trade can withstand unprecedented shifts from one trading level to the other.

The support levels go hand in hand with the resistance levels. Fibonacci retracements inform the forex traders of when the pitch resistance and support level value is achieved contributing to making a predictable decision.

Placing Stop-loss

Stop-loss orders and technology is a trading line which a forex trader places on the trading charts. Stop-loss ideally allows the trade to halt whenever the trend hits the bar.

Stop losses prevent a forex trader’s capital from being completely depleted as a result of losses incurred. The stop-loss orders are solely based on Fibonacci retracements technical analysis because Fibonacci uses the minimum and maximum trade level limits.

Target Prices

The target prices are important trading points which a trader uses to maximize his or her profits. For instance, during trading, a forex trader spots a crucial slip differential trading point which could either steeply rise or fall.

The trader can decide to either stake maximumly or considerably based on the trade levels. This is known as the target price. Target prices are crucial trading points where every trader seeks to invest in.

With Fibonacci retracement analysis, conclusions on the trade routes and patterns can be done easily allowing target price points to be evaluated.

Stock Prices

Fibonacci retracement levels play a crucial role in determining the stock prices and variations. The horizontal lines of the Fibonacci retracement levels provide a trader with first-hand information on resistance and support levels.

Through analysis of the various stock prices, a forex trader is able to prudently arrive at the best trading conclusion. Additionally, the Fibonacci retracements show how much the various stock prices have retraced in a considerable period of time.

The stock price frequency and period pairs can be assessed based on the information generated. Through evaluation of previous stock prices, the trader can predict how likely the next trade is set to flow.

Fibonacci Retracements Limitations

Just like any other forex technical analysis, Fibonacci retracements suffers shortcoming associated with volatility and unprecedented forex trends. Although various shortcomings accompany Fibonacci retracements, it still stands out as a key forex trading determinant. Some limitations includes;


Fibonacci retracement is purely based on arithmetic mean ratios and values. The majority of traders find it difficult to cope up with predicting ratios and percentiles that are associated with Fibonacci retracements.

This calls for enough study preparations before using the technical indicator as a mapping and study tool. While it is useful to those who have grasped all the necessary elements of this technique, it requires time for new forex traders to completely understand Fibonacci retracements.


Fibonacci retracements are only used for the study of support and resistance levels associated with volatility.

The technique lacks useful directional indications which could provide information on other sets of forex trade information such as upward and downward trends.

Purely relying on Fibonacci ratios limits the technique to just the arithmetic aspects while forex trading is multifaceted and requires other measurement forms.


Extensively learning Fibonacci retracement dynamics goes a long way in contributing trading knowledge to a forex trader.

Fibonacci retracement requires continuous interaction with the technique before eventually using it for trading analysis purposes. It is always recommended to find a forex trading expert who has a full grasp of Fibonacci retracement technical indicators to assist in comprehending forex trading.


1 2 3 11
July 1st, 2024

Volume indicators and their relevance to forex trading

Forex traders use volume indicators to measure the intensity of security trading and help identify potential price reversals. While several […]

June 5th, 2024

The benefits and drawbacks of stock splits

A stock split is a corporate event whereby the total number of shares outstanding is proportionally increased while the price […]

June 4th, 2024

In CFD trading, developing short-term trading methods is crucial 

If you want to succeed in CFD trading, developing a method that can be profitable over short-term time frames is […]

May 15th, 2024

Questions to ask when buying forex signals software  

Forex signals software can be a great tool to help traders make informed decisions and capitalize on trading opportunities. However, […]

March 28th, 2024

Why price action trading is so popular among traders 

Price action trading is the process of trading by analysing raw price data to identify and trade trends. This type […]

March 27th, 2024

9 simple stock trading strategies to avoid losses 

Each day, traders make their way to the markets in hopes of securing profits. However, many find themselves on the […]

February 26th, 2024

Things you should know before opening a brokerage account

If you are considering opening a stock brokerage account, you should know a few things. Each account is different, so […]

February 1st, 2024

What is the best way to trade ETFs on the stock market?

There is no generalised answer regarding the best way to trade ETFs on the stock market. However, there are a […]

August 9th, 2023

Navigating the world of listed options 

Listed options trading can be a powerful tool for intermediate traders seeking to enhance their portfolio returns and manage risks. […]

August 1st, 2023

Choosing a suitable copy trading account: a comprehensive guide 

Copy trading has become increasingly popular for traders to access financial markets with minimal effort and time. For novice traders, […]