 Hi, in this video, I'm going to be covering Fibonacci Retracements and Extensions. And basically what Fibonacci is, what Fibonacci Retracements are and the ratios and what the extensions are and how traders trade Fibonacci Retracements and Extensions. In this video that I'll be covering, I'll be more focusing on the retracement side of Fibonacci and in another video I'll be doing Extensions. So Fibonacci ratios are a mathematical equation that are based on the Fibonacci number sequence discovered by a mathematician whose, I think his nickname was Fibonacci and his real name was Leonardo Bigolo. I think that's how you pronounce his surname. But the ratio that was discovered by Fibonacci is found in all aspects of life from leaf arrangements in plants to measurements and proportions within the human body. So what traders have done is they've used certain Fibonacci ratios within the financial markets. Now, Fibonacci ratios are numbers that are used by traders to figure out the, putting a distance or the level that a price may retrace to. So if you've watched the video on how to trade a trend, you'll understand what a retracement or a pullback is. So if you haven't watched that yet or you don't know what a retracement is, I suggest you pause the video or go and watch that video first on how to basically trade trends and then come back to this video if you don't understand what a retracement is. And why retracement's happened. So what we wanna do is look for a retracement. So first of all, we see a move that goes from a low and to a high. And as prices pull back and retrace, there are certain levels within the market between this low or an identified low and this high that the market may want to retrace to. And these levels aren't exact, but the first level that prices may want to retrace using the Fibonacci ratios and the main Fibonacci ratio numbers are the 23.6. And underneath that would be the 38.2. Then we'd have the 61.8. And then we have the 78.6. Now these are ratios and these can be used as percentages. So if this represents zero and this represents 100, right? 100% meaning that price, if prices did come all the way back down to an identified low after this was the low, this was the high, then prices have retraced 100%, right? They've actually retraced 100% of this move higher. So let's just take some of this off, right? So this would be obviously zero, the absolute high prices haven't retraced at all. So these are all done as percentages and so on and so forth all the way down. And so when prices do retrace to this 23.6 level, traders will look to see if prices will continue on their journey higher. If prices fail there, then there are traders that trade the 38.2% level and so on and so forth. So Fibonacci ratios are used as support in an uptrend or in a move that is very bullish and traders hope to basically buy at certain retracement levels. And in a downtrend or in a down move, traders will be looking for the retracement in a pullback and these are used as resistance in a downtrend. So let me draw the opposite if this was a move down and as I'm going back through the charts, the retracement tool is actually found on your software. So whatever charting platform you are using, whether it's Trading View, whether it's MT4 or C Trader or anything like that, it's pretty standard to have the Fibonacci retracement tool on there somewhere. So you don't necessarily have to plot these lines yourself. So in a down move and you're waiting for a certain retracement, prices are pulling back. So you would be waiting for certain levels. So if this was the high and this was the low, this would represent zero because prices haven't retraced the tool, they can't retrace from the low and this would be the high, this would be a 100% retracement if prices came all the way back up here. And then the levels are again, 23.6, 38.2, 61.8 and the 78.6. Now there are other Fibonacci numbers that are derived and this would be like the 88.6 and there is a 50% level but strictly speaking the 50% level, although you may see some people and some other traders use the 50% as a Fibonacci level, the 50% level actually isn't a Fibonacci number. These are the ratios and the main ratios that are derived from the Fibonacci sequence. The 50% level is not a Fibonacci level, though it is traded by a lot of traders. So this is would be a down move, prices would retrace back to certain levels and then you would have traders looking to get short at any of these levels if prices were to come up to any of these levels. So these again, just as this is a 23.6% retracement, a 38.2% retracement of this move from the high to the low if we were looking to get short. So traders use these as resistance areas and resistance zones to try and get short. So what we're gonna do now is we're gonna look at how to or where to find if you're using trading view that is your Fibonacci tool and also the best ways that traders will trade the Fibonacci ratios. This is the Euro dollar currency pair and we are on the 60 minute one hour timeframe chart. Now when plotting levels of your Fibonacci levels what you wanna do is first of all find your Fibonacci tool and this is trading view and it's located on the left hand side and the default image would be here which is basically like this pitchfork and then you would basically go down to Fibonacci retracement. So Fibonacci retracement is here, click on that. If you're using a different platform like Metatrader 4, I think it's along the top of the toolbar somewhere, if not you can just Google where to find the Fibonacci retracement tool on MT4 and there'll be some images I'm sure on Google. So what we wanna do now is once you have highlighted your Fibonacci retracement tool, again the idea of using the Fibonacci retracement tool is to look for pullbacks and for retracements. So you've seen a move like this and your trend trading let's say for example so you see a move and you're looking at a level with which or trying to predict a level at which you want to be a buyer. Now you don't wanna be a buyer at the top of the market, you wanna look for a retracement into a level and this is where Fibonacci actually can help with trying to predict how far the retracement will go or can go. So what we've got is we've got a move up and identified move up and then what we would do is plot our Fibonacci tool from the identified low and then we drag our Fibonacci tool to the high. So if we're looking for a pullback to be a buyer you always go from low to the high. You should drag the tool in the direction that you want to trade. So if you want to trade up drag the tool up if you wanna trade to the short side you're dragging the tool to the downside. So we've got our identified level low to the high and now what we're looking for is a retracement or certain retracement levels from this high. So you can see the prices and it's zoom in. So prices had fallen. There are some traders that try to enter here which seems, well actually I'll use this tool here. So there are traders if you look at the left of the tool you'll see the 23.6% 38.2, 50, 61.8 and the 78.6% retracement level. So we're waiting for price to basically come back down into these levels. The traders will be looking for price to retrace and then see if they can get a buy entry. So this may be used as a level of support. So this was the 38, this was a 618, this was a 786, right? And as you can see, as prices came down into the 38.2 level we got a bit of a reaction here not much and prices failed. The 61.8% level didn't work but the 78.6 level did. And as we can see prices went to the upside. Now should Fibonacci levels be traded and should every level be traded? No, what you wanna do is look for confluence within that, at that level. So for example, this is just a tool and you should use it in conjunction with other tools. So if this level was a level of previous support or resistance, let's say for example, the 38.2 is a previous level of support and resistance and we can check that out by going to the left and was it, it looked like it was a zone. So we do draw our support and resistance levels as zones. You can see that this was an area where prices did come into the top of that resistance area now turn support but it just failed to hold. If you look to the left, the 61.8 level had been used as a level as well but we just didn't get the reaction. That trade has won it, as you can see, that was a level but what we did see was price react at the 78.6 level so we can take this and we can see that there was a level where we had prices bounce off that level. Surprise was resisted, supported, resisted and then supported at this level, the 78.6 level and then we got a move to the upside. So that's the way that traders, so that's one of the ways that traders will trade Fibonacci levels, it's not, it shouldn't be used as or they shouldn't be used as levels on their own. They should always be used in conjunction with other indicators, especially support and resistance and maybe other technical indicators if you do trade with indicators. So in this example, we had the Fibonacci retracement, the 78.6 level was the ratio that prices decided to move higher from. So now we have entered another move higher so this is the high and a higher low and if you watch our video on trend trading, what we always wanna do is look for areas where we see lows, higher lows, highs and lower highs. So if you have identified a level, a low or a higher low, that's where you really want to place your Fibonacci and it has to be an obvious level as well. So again, this would have been the higher low as you made a higher high here, prices broke out from here. So we would take the absolute low, which would be somewhere around here and then drag the Fibonacci tool to the high and then wait for some confirmation of a level. Now, we can see that prices at these levels here, prices did come down to the 38.2 level this time. So we had a bit of a bounce at the 23.6, prices struggled around there and at the 38.2, we had several bounces and prices went higher. So the 38.2 was a level of interest, was there a level that we could have any kind of confluence with that? In this occasion, there wasn't a level of confluence, but we may have seen a bullish candlestick formation right here. We could have seen a sort of double triple bottom, this level being tested once, twice, three times and then moved to the upside. So although we didn't get any kind of confluence regarding the support level, we did get maybe a candlestick formation, double triple bottom at this price. And maybe if you use the relative strength index or move an average or a MACD, there might have been some buying opportunities or buying signals at this level. So it's always good to use the Fibonacci tool in conjunction with other technical methods. Let's go through another one. So we've got a swing high. So we've got, that would have been the low and then we've got a brand new high, which is here and prices came right down into, and if you can see that the 61.8% level before making a new high. So it was this level here, delete that. So this is where the 61.8 level is and you can see prices came down into the zone. And just like support and resistance, the 61.8 level is just a zone, even though it's displayed as a line, there is a zone. Any kind of support level should be treated as a zone and not necessarily as an exact level because there is an art to it. So as we can see, this was the low, this was the high, as prices basically made a new high from up here. So this would have been the higher low and the higher high prices did retrace back into the 61.8% Fibonacci level and then prices went higher. And I think this one would have went down to the 78.6 level. Yeah, we can see that prices from this new high and this identified higher low prices came down into this area. We had a couple of touches, three, four and then prices went higher. So that's how you would use the Fibonacci retracement tool in an uptrend and I'll go through an example of how we would use it in a downtrend. So this is the US dollar Japanese yen currency pair on the 240, the four hour timeframe chart. And we're going to look for Fibonacci retracements in a downtrend. So first of all, we need to identify a potential trend. So we want to see prices making lower highs and lower lows. So right here, once we see prices making a lower high and a lower low, we want to be on alert for a potential trend. So we're looking for some sort of pullback into a level. So the underside of this level here would be the area we would look for. So we've seen this new low, a lower low and then prices retrace back. Now with the Fibonacci retracement tool, we would take it from the high this time and we're trading it, we're pulling it in the direction that we want to trade. So it's from that lower high, identified lower high to this level here, to the new low. And then we would wait for price to retrace back into a level before trying to get in at a trade. Now, you can see here that prices came up into the 38.2 and even actually the 50% level somewhere between here. But prices really around the 38.2 level. As you can see it reacted here. Prices couldn't break above the 38.2 level and then prices went down. We did have the confluence of a previous support level turned resistance here. Now, one thing I haven't mentioned is the golden ratio which is the 61.8% level. This is known as the golden ratio of the Fibonacci numbers. This is a very, very popular number for price to retrace to. And if you actually think about where you are when it comes to the retracement, you would think that the 23.6 level is quite an aggressive, sorry, an aggressive entry. When it comes to trading, you must be expecting a very, very strong trend for prices to kinda come back to that shadow retracement and then go further down. The 38.2 is quite a popular one, a popular ratio amongst traders. And as you can see with price, let me get this tool. So as you can see, as price did come up to this level, pinged off it, prices did go down, prices came up, couldn't go above it. Now, depending on where you put your stop loss, if you put it just above here or above here, you may or may not have been stopped out. But it looks like the 38.2% level held and prices did go further down. But going back to the 61.8% Fibonacci golden ratio, this is the ratio that traders tend to, is popularized by traders. And if prices do come up to the 61.8% level, it is quite a good level with which to short from or buy from if we're in an uptrend. So let's see if we can find a couple of examples of the 61.8% level. Right, so we have a new low being made. So when prices do retrace, they retrace back to this area here. Again, 38.2, ping, ping, ping, and then we make a new low. Now, what you also have to be careful of is that you don't want to necessarily trade every swing. So, and what I mean by swing is basically a lower high to a lower low or a lower high. Sorry, let me repeat that. You don't want to trade every low, low and lower high or high and higher low. You really want it to be quite obvious, quite a big move because shallow moves on traders aren't necessarily looking at those moves. They're looking at the bigger picture. So even though we do get another move down here, and that would be an identified level, we only really have one candlestick, whereas here we have one, two, three, four candlesticks that have gone below this low here. So even though we have one candle below technically we have made a lower low, as far as the retracement goes, it's very difficult to actually trade this trade because you want to see maybe a few candles below that level before prices do retrace back or a more severe move to the downside. So if you wanted to retrace, if you wanted to use the retracement tool still from this high to this low, what you do have is prices, which is obvious that traders did use that as well. You can see that prices came back up into that 61.8% ratio, which is here. And then prices did react there. And you can see as well that you had the confluence of what was considered a support level and now term resistance in the future. And we can see prices did react to that level and went lower. So here's an interesting one where we have price from this obvious high to this obvious low. Now, we can see that prices did react to the 38.2 again, reacted to this level. Prices didn't continue lower. Prices came up to the 78.6 level. Prices did react there and then they came up really to near the 100% level before reacting again. So there are times where Fibonacci, you know, not everything works 100%. Nothing in trading. We're always dealing with probabilities and I keep repeating myself, but just to drum it into you that it's probabilities. We are dealing with probabilities. So look at this level. Let's have a look at this level here. So it's not necessarily the clearest, but let's, if I was looking at that, I would look at this as, this would be an obvious high or lower high and then this would be the lower low. So I would take that level there and look to here. And as you can see, prices did react at around just before that 78.6 level. And we do have a level of, we got a level of support, bit of support here. Prices came back down and then prices came back up into and spiked nearly touching this 61.8 level. Eventually it did later on, even if we dragged prices down to here, we can see that this is definitely a level where traders were looking at with some sort of confluence as well. And we also have another level here. So you might want to take the obvious highs and the obvious lows. That's one of the things that you should always do is look for obvious highs and obvious lows. Don't look for obscure ones or levels and higher lows and lower highs and highs and lows that are not clear. If in doubt, then just don't plot the zone from there. It has to be extremely clear for you to want to trade that level. So we have a pullback, we have a little bit of retracement here and then as we're looking at downtrends, this would be the last swing before prices made and then we came back up into bullish 50% level. Now we've got a clear high to low and we can see prices did come back up into this source back above it. Now, again, is Fibonacci perfect? No, Fibonacci isn't perfect all the time but that's how traders trade Fibonacci to the downside and to the upside. The 23.6 level is quite an aggressive entry. 38.2 is very popular. Prices will bounce and will hold off of the 50% level even though the 50% level is not considered and not technically a Fibonacci level but traders do use this level. The 61.8 is the golden ratio and the 78.6 is quite a deep retracement. So that's how you trade Fibonacci. If you do have any questions, just email me at infoattrading180.com.