Lesson 19: Advanced Technical Tools (Fibonacci Retracements)

Part of Module 6: Advanced Strategy & Smart Money Concepts

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Introduction: Finding Harmony in the Chaos

In the 13th century, an Italian mathematician named Fibonacci discovered a sequence of numbers that appears throughout nature. Traders have found that the ratios derived from this sequence also appear frequently in the financial markets. The Fibonacci Retracement tool uses these ratios to predict where a price pullback might end before the trend continues.

What is a Retracement?

A trend is not a straight line. An uptrend makes a strong move up (an "impulse"), followed by a smaller move down (a "pullback" or "retracement"), before making another strong move up. The Fibonacci tool helps us identify potential ending points for that pullback.

The Fibonacci Retracement Tool

When you use this tool, it will draw horizontal lines at key Fibonacci levels. The most important levels to watch are:

• 38.2%
• 50% (A key psychological level)
• 61.8% (Often called the "Golden Ratio," a very strong level)

How to Use the Tool: A Practical Guide

The way you draw the Fibonacci levels depends on the direction of the trend.

1. In an Uptrend: Select the tool. Click on a major Swing Low and drag your mouse up to the most recent Swing High.
2. In a Downtrend: Do the opposite. Click on a major Swing High and drag your mouse down to the most recent Swing Low.

The Pro's Secret: Using Fibonacci for Confluence

The real power of Fibonacci comes when you combine it with other analysis, like Support and Resistance or Supply and Demand zones. This is called confluence.