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Fib.Retracement tool is applied to identify a completion point of a retracement leg within an impulse.
As you know price action has a zig-zag form.
For example, in a bullish trend, the price tends to set a higher high then retrace and set a higher low before going to the next highs.
In a bearish trend, the price tends to set a lower low and retrace to a lower high.
With retracement levels, we are trying to spot the point from where the next impulse in a bullish or bearish trend will initiate based on the last impulse leg.
Fib.levels that we will apply are:
0.382
0.5
0.618
0.786
The retracement levels will be drawn based on XA impulse leg.
From its low to high if the impulse is bullish
and from its high to low if the impulse is bearish.
From one of the above-mentioned levels, a trend-following movement will be expected.
One should apply different techniques to confirm the strength of one of these levels.
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