Learn a different way to use Fibonacci retracement tool by placing it on swing high and low; match Fibonacci levels with minor corrections for better results. Like, comment, subscribe and trade safely.

How to Effectively Use The Fibonacci Retracement Tool
In this article, we will discuss the Fibonacci Retracement tool and how it can be used to your advantage. We’ll cover what it is, how it can be used, and any potential drawbacks to its use.

What is the Fibonacci Retracement Tool?
The Fibonacci Retracement Tool is a technical analysis tool that measures the distance between two points on a price chart. It is based on the Fibonacci sequence, a mathematical concept that has been used for centuries in natural sciences. The tool is used to help traders identify support and resistance levels in a market.

How It Works
The tool is usually found in most trading platforms, and it is simple to use. To use the Fibonacci Retracement tool, you need to select two points on the price chart of the asset you are trading. The two points you choose should be the swing low and the swing high of price action.

After selecting these two points, the tool will plot several horizontal lines on your chart, at predetermined levels that correspond to the Fibonacci ratios. The ratios used are 23.6%, 38.2%, 50.0%, 61.8%, and 100%.

How to Use the Fibonacci Retracement Tool Effectively
Placing the retracement tool on our swing low and swing high, followed by trying to match up the Fibonacci levels with minor volatility periods where you have slight corrections followed by continuation, can be effective.

For example, let’s say you have a rejection off of the high, followed by a close and then a continuation. The price went right up to the full retracement and then went down. By matching up the Fibonacci levels with these minor volatility periods, you can potentially identify areas of support and resistance.

Potential Drawbacks to Its Use
As with any technical analysis tool, there are potential drawbacks to its use. One major drawback is that Fibonacci levels don’t always line up with areas of support and resistance.

Another potential drawback is that other traders may be looking at the same Fibonacci levels as you. This means that if many traders are looking at the same level, it can become a self-fulfilling prophecy.

Conclusion
While the Fibonacci Retracement Tool is not perfect, it can be a useful addition to your trading tool kit. By using it in conjunction with other technical analysis tools and your own trading strategy, you can potentially identify areas of support and resistance that other traders may be overlooking. As with any trading strategy, it is important to practice and experiment to find what works best for you.