The charts below show sample trades using the Fibonacci retracement.
GBP/USD was going on an up-trend from November 2003. During an up-trend,
traders would look for pullback and buy in. In January 2004, GBP/USD
reached its first top at 1.8580 and started pullback. The pullback was
until 1.7820 which was the 38.2% retracement of the up-trend. A bullish
engulfing pattern at the 38.2% retracement level confirmed the pullback.
The trend resumed its upward momentum and reached 1.9140 in Feburary.
After reaching the historical high at 1.9140, GBP/USD reversed its
direction and started a downtrend in February 2004. It reached 1.7905 as
an intermediate bottom. The price then rebounced. Traders would look
for sell at rebounce. The price rebounced twice up to 50% retracement of
the downtrend and they were confirmed by bearish engulfing pattern of
the candlesticks.
Note that Fibonacci retracements can be use in both bullish
(up-trend) and bearish (down-trend) markets. Traders should look for
retracement levels and use them with candlestick patterns to confirm the
trades
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