It provides ideas or suggestions on trade entry and exit points.

Support your technical analysis with accurate levels that really matters and price really reacts to them. That strategy is suitable for slightly more experienced forex traders.

This is a very powerful tool and one of the best forex indicators out there. Don’t miss the opportunities it offers.

## What Exactly are Fibonacci Levels?

Have you ever heard about the Fibonacci sequence? It’s a sequence, in which each number is the sum of the two preceding ones.

It includes integers 0, 1, 1, 2, 3, 5, 8, 13, 21, 34…

There is something very special about that Fibonacci sequence. The ratio achieved by dividing one of these numbers by its successive number is called golden ratio.

That proportion can be noticed in various areas like mathematics, nature, and… financial markets.

It’s a bit like a mystery or magic, but it’s proven to work!

The Fibonacci ratios precisely are the following: 23.6%, 38.2%, 50%, 61.8%, and 100%. These ratios prove the mathematical relationship between the number sequences and are very important to traders.

First, one needs to identify the high and low price points on the chart – luckily the Auto Fibonacci Retracement does the job automatically. The retracement is defined by taking these extreme points and drawing the vertical distance.

When we have Fibonacci retracement plotted on the chart as horizontal lines, then we can consider these levels as support and resistance.

These levels often are areas at which a market price reverses its current position or trend.

Take a look at examples of bullish and bearish retracements below:

A long trade opportunity occurs when there is a general uptrend and the price has made a pullback. A trader should watch closely a price action near horizontal lines, especially at 38.2% and 61.8% levels.

If the price clearly rejects a level (for example: by a bullish pin bar), then it is time to open a buy trade.

Place your stop loss a few pips below a line that triggered your trade. Take profit can be taken at higher horizontal lines.

Even if your stop loss gets hit from time to time, that strategy gives an awesome risk-to-reward ratio.

A short trade opportunity occurs when there is a general downtrend and the price has made a pullback. A trader should watch closely a price action near horizontal lines, especially at 38.2% and 61.8% levels.

Open a sell trade when you notice a level rejection by a bearish price action pattern.

Place your stop loss a few pips above a line that triggered your trade. Take profit can be taken at lower horizontal lines.

As we already said, don’t worry if your stop loss gets hit from time to time, that strategy gives a great risk-to-reward ratio anyway.