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Forex Tip: Understanding the Fibonacci Indicator

Trading is ever-evolving, diverse, and dense with remarkably skilled market participants. Different strategies apply, with the bottom line being making money.

If anything, traders would always want to be money printers. 

The bad news is that the market rewards the patient and the skilled.

Both can be nurtured. In the path of being a ninja trader, one ought to learn about the Fibonacci indicator. Proponents say if Fibonacci applies in science, then it can find its way to trading.

The Fibonacci indicator takes many forms and spins, but the most common one is the Fibonacci retracement. Regardless of type, all Fibonacci tools are predictive.

The Fibonacci retracement levels are horizontal lines that indicate potential reaction points. These levels are the 23.6, 38.2, 50, and 61.8 percent points. They work best in trending markets, assisting a trader in estimating possible resistance and support levels where prices may bounce back and resume the primary trend.

A trader must identify the swing high and low of a given trend to use a Fibonacci retracement level and predict possible reaction points.

Afterward, pasting the Fibonacci retracement tool can highlight possible support and resistance levels for placing long or short positions.

Keen to learn the forex market? Check out our other explainer articles in our Learn Forex blog. 

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