 Welcome to this short video on Fibonacci retracements. My name's Ryan Ododi. I head up Product Development here at CMC Markets and we're going to walk you through how you can use Fibonacci retracements in your trading strategy. But before we start, we need to understand a few basic principles of support and resistance because these are the key elements of what Fibonacci retracements allow us to do. So let's have a look at the screen and we can have a look at a couple of examples of how you can draw in your own support and resistance levels. So if we're looking at the market here on Tesla, you can see that the yellow line at the bottom of the screen is our support line. This is an area of support where the price moves down, the buyers come back into the market. So you can have a look at an example in the blue circles. Each time the market came down to that support level, the price went up in value. Went down, went back up in value. The opposite of a support level is a resistance level. Now a resistance level is higher than the current market price where the sellers come back into the market. So you'll notice a couple of examples here where the market reached this level and fell in value. Reached this level and fell in value. Now support and resistance levels, you can trade in a number of different ways, but the two key ways of trading it is that you think either history will repeat itself or that history won't repeat itself and the trend is broken. Just to give you an example, when we come down to this particular support here, we've seen this act as a support level in the past. So we think that history will repeat itself and we can put on a buy trade just above the support level. Now make sure to put your stop losses just below. Always place a stop loss when placing a trade on the market to give you that protection when the market moves against you. The opposite on the resistance level is when the market came up to this level here that I'm showing now, well we think, yep, it's going to repeat itself so we can put on a sell trade and we can then put on a stop loss just above the resistance level. The other way to trade is that you think that history won't repeat itself, okay? We think that the trends are finished and we think some sort of news will actually break us out of that particular support and resistance area. So what we can do there is we wait for the market to break above that resistance level and we place a limit order to buy into the market in that move. But again, remember, place that stop loss just below the resistance level. Now we've talked about support and resistance but what we want to talk about is the Fibonacci retracement levels. So if we go onto a chart here that I have for pound versus Aussie, the Fibonacci tool is available in your draw tools, simply click it and the way we draw on a Fibonacci retracement is that we find two key levels that we think are of interest on the chart. So I'm going to use the high and the low values of the price displayed on this chart level. So if I draw the lines in, you click on the high, you click on the low and what the Fibonacci retracement does is it automatically generates support and resistance levels at key levels. Now what are those levels? Well Fibonacci is key mathematical levels. Basically if you add the numbers of 0 and 1 together, you get 1, add 1 and 1 together, you get 2. 2 plus 1 is 3, 3 plus 2 is 5, 5 plus 3 is 8. If you keep going and then you divide the numbers against each other, the ones next to each, you get what we call the golden ratio and the golden ratio is 61.8%. And so one of the key levels that is drawn on the Fibonacci retracement is 61.8%. If you divide a number by the number to the right by 2, then you'll get the next key level which is 38.2%. If you divide it by the number 3 to the right, then you'll get the 23.6% level. So what the Fibonacci retracement levels are doing is providing you these automatically on the chart when you've determined the key high and low levels. So if we have a look at the example of pound versus Aussie, we've drawn it from the high to the low and then what we're looking for is the price action after that. So you can start to see that when the market moved, came up to that first retracement level of 23.6%, we started to see some sort of pullback. The sellers came back into the market and it acted like a resistance level. If we move further on down the track, you can see that when price reached the 38.2% level, the same thing happened. We started to see that the market was running out of steam, the sellers were coming back into the market and it acted again as that sort of resistance level. So here is an opportunity or a potential opportunity to look at the markets and potentially place a trade. You can see then it came back down again and then the 23.6% level active is at that support level again. Come back up, the resistance supports. So basically the Fibonacci retracement is trying to draw those levels in for you automatically. And again, one of the mistakes that clients make regularly with Fibonacci retracements is not using it with other tools. I think Fibonacci retracements are a secondary type of indicator. They provide you with an area of interest, but you should be looking at other tools, moving averages, support and resistance levels or trend lines to determine whether or not you want to enter that trade. One of those examples is the trend line. So if we go down to the draw tools, if I draw a trend line in, you can see around about this level, you've got an area of support, but it's a sloping form of resistance or support level. And it works exactly the same way as support and resistance. Each time the level reaches that trend line, bounces back up in value. That's an opportunity for you to trade. If we go and have a look at a couple of other examples, you can see here on Bitcoin. Bitcoin is a very technical type of instrument to trade. We draw the trend line between the high and the low of Bitcoin price. And we move forward, you can start to see that those key Fibonacci levels are again present and form those resistance and support levels. Now, support and resistance, trend lines, they're all great tools to use and work in conjunction with your trading strategy. Fibonacci retracements, whether or not you believe it or not, it's up to you. But basically, if a lot of traders are using the same tool, it becomes a self-fulfilling prophecy. So all traders or all those traders using that tool are looking at the exact same sort of key levels. So, you know, have a look, place them on your trades, on your charts and see whether or not you can include it as part of your trading strategy.