how reliable is fibonacci retracement indicator?

@emma_durban - 7 months ago - Technical Analysis

Hi everyone, I have not found alot of success using the fibonacci retrcement tool and i dont know if i am doing something wrong. The point of confusion for me is that there are many levels: 23.6, 38.2, 61.8 and its hard to know which to rely on. Please what do you guys think about fibonacci?

@maasai_princess - 7 months ago

Never been a fan of it either, i just look out for candlestick patterns that could suggest to me when a reversal may occur. I am keen on hearing what other traders think on this thread 🍧🍦

@josiah_edem - 5 months ago

The Fibonacci Retracement indicator just helps you draw support & resistance lines around the price range you specified.

It's as simple as that, you only use Fibonacci retracement when you spot an upward or downward trend (YOU DONT USE IT IN SIDEWAYS MARKETS).

In the attached image after i spotted an upward trend, i clicked on the fibonacci icon then drew a line starting from the beginning/lowest point of the trend to the highest point on the trend. (remember if it were a downward trend, we would draw the line in reverse, meaning starting from the highest point of the trend to the lowest point of the trend)

After drawing the line, the fibonacci levels then appeared (navy blue lines on the chart). In an upward trend, the lines are simply there to act as support for falling price, so if price refuses to respect the fib support levels and breaks past them, then it means the upward trend is likely coming to an end.

In fact, the strongest fibonacci level is the 61.8 and if price breaks through this support level, then the upward trend is likely toast/over with.

In the image you can see during the upward trend, there was a retracement, but price bounced off the 38.2 level and kept rising. Price was also unable to break below the 23.6 fib support level.

That is basically all there is to Fib Retracement, although it is not 100% reliable it gives you a guide on where to enter & where to place your stop loss if you want to trade a rising or falling market as the case may be.

@scooter_mx - 5 months ago

Its pretty reliable and works for me, been using it for years now. You just need to know how to draw the Fib line correctly and it displays possible levels where price should retrace. We should not expect too much of Fib or any indicator and shouldn't use them in isolation. Indicators should be used alongside commonsense price action.