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The Fibonacci based retracement method is one of the most common ways for trend traders to trade a trend. Using the retracement levels based off the Fibonacci numbers, traders are able to pick the turning points in the price. This gives them the optimal price point from which they can enter into a trend. While it sounds simple, to perfect the art of picking turning points in price, requires a lot of practice. In this article we show you how you can use the Fibonacci retracement tools in order to find the turning points in the trend.

Step 1: Identify an Initial Big Move. We are Going to Trade its Retracement.

A trend helps the traders to identify the direction of the market and to determine where the market will head further. A big price movement indicates that the market has reversed from its original direction and will possibly continue further in that direction.

Step 2: Use the Fibonacci Tool and Plot the Levels on the Chart

After placing Fibonacci levels on the chart, we need to wait for a retracement and see where it touches the Fib levels. The most desirable condition is when the price bounces off after touching the 50% or 61.8% fib ratio. These ratios are also known as Golden Fib ratios.

In an uptrend, always make sure to plot the Fib levels from Swing Low to Swing High. Likewise, in a downtrend plot, the Fib levels on the chart from Swing High to Swing Low.

Step 3: Enter only after Confirmation

Typically,