AUTO FIBONACCI RETRACEMENT INDICATOR

• One of the handy tools for technical analysis is a Fibonacci retracement. If you are not familiar with Fibonacci retracement, do not fret. Essentially, the tool uses a Fibonacci sequence which includes 0,1,1,2,3,5,8, 13 and so on.
• When you divide the Fibonacci numbers with the adjacent numbers, you get the Fibonacci ratios. The Fibonacci retracement tool plots these ratios on the price chart. Essentially, you have to identify the highs and the lows of the chart before plotting the indicator.

Well, identifying the highs and actually plotting the chart can be a taxing task. Needless to say, you are susceptible to making mistakes, especially if you are not conversant with the indicator. Luckily, we have the Auto Fibonacci Retracement.

• As the name implies, the indicator plots the indicator on the chart automatically. It identifies the high and the low of the chart for you. This means you do not have to set the two points explicitly.

The best part is that, the auto Fibonacci indicator can be used in all time frames and currency pairs.

How the Auto Fibonacci Retracement indicator works

• The auto Fibonacci plots the retracement levels between 0 and 100%. If the market is bearish, the zero is at the top and 100 points at the bottom and vice versa. Essentially, after reaching a new high, the market tends to retrace up to the various Fibonacci retracement level.
• Let assume an uptrend is expected to retrace up to 38.2% Fibonacci level. Simply wait for the market to pull back up to market 38.2% and place a buy position. You can place the stop loss below the swing low or below 50% Fibonacci level. For the exit strategy, you can place the take profit at the next high or resistance level.
• In many cases, the price moves up to 50% Fibonacci level. However, 61.8% is endeared to most by traders because it offers massive pullback. The 78.6% level also provides an excellent reversal point, albeit highly overlooked.

Besides trading pullback, the Fibonacci levels offer great take-profit levels when riding the trend. For instance, if an uptrend is retracing, you can open a short position with take-profit at the 68.1% level.

A Chart Example Auto Fibonacci Retracement indicator

• The chart above shows the price movement for U.S. dollar against the Japanese Yen in 30 minutes time frame. The currency pair price retracement goes past 38.2% and 50% levels. However, when it reaches the 61.8%, the price pulls back to the 38.6% level, before resuming the bullish trend.

Depending on your trading analysis, you can enter a downtrend with stop loss above the recent swing high. Ideal exits points are 78.6% level or 100% Fibonacci level, coinciding with the next support zone. Some traders also use Fibonacci expansion to take profits.

Conclusion

• The Auto Fibonacci Retracement indicator enables technical trades to plot the Fibonacci levels with ease. The indicator does not provide the entry and exit signal by itself. However, the Fibonacci levels provide excellent entry and exit points. Therefore, it is advisable to use the indicator in combination with other tools to establish confluence.