Been trading for a while but never really got the hang of fibonacci levels. I see other traders using them all the time but my retracements always look off.
What’s the proper way to draw these things? Do you go from swing high to swing low or the other way around?
Draw uptrend fibs from swing low to swing high. Downtrend goes high to low.
Picking the right swing points matters most. Find clear peaks and valleys where price actually reversed - skip the tiny pullbacks. I zoom out to higher timeframes first to catch the major swings.
Most platforms calculate the levels automatically once you draw the line. I watch 38.2%, 50%, and 61.8% - price usually bounces or breaks at these spots.
Don’t keep redrawing them. Pick your swings and leave them alone unless there’s a major breakout creating new swing points.
Uptrend fibs go from low to high, downtrend from high to low. Make sure your key swing points have real volume backing them - not just random spikes.
The Problem: You’re having trouble accurately drawing Fibonacci retracement levels on your charts, leading to inaccurate estimations of potential support and resistance levels. You’re unsure about the correct direction to draw the lines (swing high to swing low or vice versa).
Understanding the “Why” (The Root Cause):
Fibonacci retracement levels are based on key swing highs and swing lows in price action. Understanding the correct placement is crucial for accurate analysis. Incorrect placement leads to unreliable predictions of support and resistance. The direction you draw your Fibonacci lines depends on whether you’re in an uptrend or a downtrend.
Step-by-Step Guide:
Step 1: Identify the Swing High and Swing Low: This is the most crucial step. A swing high is a peak in price where the price reverses and starts to trend lower. Conversely, a swing low is a trough where the price reverses and begins an upward trend. Avoid selecting minor price fluctuations; focus on significant reversals. Inspect higher timeframes (e.g., daily or weekly charts) to identify the most prominent swings. Ensure that your chosen swing points show clear evidence of a reversal in momentum.
Step 2: Draw the Fibonacci Retracement:
Step 3: Interpret the Levels: Most trading platforms automatically calculate the Fibonacci retracement levels (e.g., 23.6%, 38.2%, 50%, 61.8%, 78.6%, and 100%) once you’ve drawn the line. These levels represent potential support and resistance areas. Price often finds support or resistance near these levels, but it’s crucial to understand that they are not guarantees.
Step 4: Contextualize with Other Indicators: Use Fibonacci retracements in conjunction with other technical indicators and price action analysis for a more comprehensive view. Relying solely on Fibonacci levels can be misleading.
Step 5: Avoid Over-Redrawing: Once you’ve identified your swing highs and lows, avoid repeatedly redrawing your Fibonacci lines. Only redraw when there is a clear and significant breakout that establishes new swing points.
Common Pitfalls & What to Check Next:
Still running into issues? Share your (sanitized) chart images, the timeframe used, and the swing points you selected. The community is here to help!