Tuesday, September 16, 2014

Forex Reversal With Fibonacci Indicator

April 25, 2011 by  
Filed under Forex FAQ


In today forex faq, I shall be sharing with you something about the forex Fibonacci indicator.

Below is the question:

AS THE PRICE ACTION REACHES FIBO:61.8, HOW DO U KNOW FOR SURE THAT THERE IS A
REVERSAL AS ‘CANDLES’ ARE CONFUSING DURING CONSOLIDATION PHASE.

If you have read the forex trading signal that I have specially prepared for you guys every week, you will know that I emphasize a lot on the Fibonacci indicator as a tool to know whether the market is going to reverse or not.

Here is what I usually use to tell a reversal:

Whenever you see the price moves, it will usually retrace and then move back up again. If you draw a Fibonacci indicator on the most recent high and low, you will find that those retracement usually ends between the 0.382 and 0.618 levels.

For those prices which retrace more than 61.8%, it is usually a reversal. In fact, when it comes to the forex Fibonacci indicator, there is no way you can know for sure that the price is going to be a reversal after it reaches the Fibonacci 61.8 level. However what I am saying here is there is a higher chance of a reversal if the price retraces more than the 61.8% level.

Fibonacci Retracement

Besides using the Fibonacci indicator, what we can do to increase our chance of knowing whether the price is going to reverse or not is to look for major support or resistance levels from the candlesticks.

If the price breaks retraces more than 61.8% and then breaks below a major support, it is most probably a reversal in action.

Fibonacci Retracement 2

However this is again not a 100% sure method as there is nothing that is for sure in trading. Everything in trading is just about probability, sometime you can have the best alignment and everything looks set to be with you but you still get stop out.

This is something that you have to be able to take if you are serious to become a professional trader.

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Comments

6 Responses to “Forex Reversal With Fibonacci Indicator”
  1. William says:

    Hi Kelvin,
    If the price breaks below the 0.382 level, is it definitely a reversal? If so, where should I put my target profit?
    Thanks.

    • Kelvin says:

      Hi William

      There is nothing 100% in trading, typically when the price breaks below the 0.382 level, it is a sign of reversal but there are also times where it is not a reversal. However the probability of it being a reversal is much higher.

      As for where to place your target profit, you can make use of major support and resistance. If the price break the 0.382 support, your target profit can be the next major resistance like the pivot points or major swings.

  2. branchis says:

    Tony,

    Thanks for explanation on FB. What is the best time frame to plot FB?
    Is it in 1 Hr or higher?

    Branchis Simon

    • Kelvin says:

      Hi Branchis

      There is no best time frame for that. You can plot it in any time frame. You just have to take note that the Fibonacci on the higher time frame will have more power than the one on the lower time frame.

  3. Anthony says:

    Kelvin have you not got your fibs back to front?
    I was taught to place them up move fib placed bottom to top

    • Kelvin says:

      Hi Anthony

      It is because of my trading platform that I have to do it in the opposite direction so that I can have my extension on the right side.

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