Traders use the Fibonacci retracement levels as potential support and resistance levels. Since so many traders watch these same levels and place buy and sell orders on them to enter trades, the support and resistance levels tend to become a self-fulfilling prophecy.
Traders use the Fibonacci extension levels as profit taking levels. Again, since so many traders are watching these levels to place buy and sell orders to take profits, this tool tends to work more often than not due to self-fulfilling expectations.
Finding Fibonacci Retracement Levels
In order to find these Fibonacci retracement levels, you have to find the price exhaustion point.
From there, use the "Fibonacci retracement" tools from your charting software.
Here we plotted the Fibonacci retracement levels by clicking on the Swing Low at 2107.75 and dragging the cursor to the Swing High at 2110.75! The software will magically shows you the retracement levels.
As you can see from the chart, the price retrace to 2109.25(50%) and are supported by candlestick signal. Later on, at around 22:25hr, the price move to it's target profit level at 2112.50 (161.8%).
It was initially resisted at 161.8% and price retrace back down to 2109.25(50%), it was again supported by candlestick signal. This time, it shot up to the next profit target level 2115.50 (261.8%).
While Fibonacci retracement levels give you a higher probability of success, like other technical tools, they don’t always work. That’s why you need to hone your skills and combine the Fibonacci retracement tool with other tools to help give you a higher probability of success.