The Fibonacci retracements tool (fibs) is the only tool I use and before I go into how I use Fibs. I want to point out this tool is only used when we have a well established trend in place. Fibs are used by a whole host of different traders across the world, so it can be a useful accessory for us to utilise.
The Fibonacci retracement tool can be found on most trading platforms and will usually show the following common retracements: 23.6%, 38.2%, 50%, 61.8% and the 78.6%.
I only concern myself with the 50% and 61.8% retracement fibs, the rest are irrelevant to me.
So How Do I Use Fibs
When we have a nice trend in place, where a pair is making new highs and new lows. I employ the fibs tool to add confluence to key levels.
Whenever I see a key level has been broken and price pushes on. My radar is switched on to look for a pull back and a price action signal to form back at the broken key level.
I prefer to look to trade strong pull backs because if the pullback is too shallow it reduces the space for a trade to move back into. This is why I scrap the 23.6% and 38.2% retracement, as it isn’t a large enough pull back.
However, the 50% and 61.8% retracements give us much more space for a trade to move into, so these two are the only ones I consider valid.
So I stretch the fibs tool so it sits on the last swing high and last swing low and this will then show us the fib retracement levels. It very easy to modify the fibs tool to just show the 50% and 61.8%, just right click on the fibs tool and change the levels.
Remembering we only use fibs to add confluence if they form in line with a key level. The key level is way more important. Fibonacci just adds strength to the key level.
So I don’t use fibs in range markets, only trending markets.
Below is an example of how fibs retracement tool can add confluence to a key level: