Tad DeVan is a Senior Forex Analyst for Market Traders Institute and host of the Ignite Trading Room. Ignite Trading Room is FREE to join for active SmartTrader users. CLICK HERE to join today >>
Fibonacci extensions are a great tool for traders to use when selecting an exit target. But did you know that the market also has a tendency to turn and continue trend at the 0.382 Fibonacci retracement level? In today’s blog, Tad shares how the 0.382 retracement level plays a role in uptrends and downtrends on multiple time frames.
Let’s talk about the Fibonacci retracement zone and how amazing it is to find them across all time frames and on all symbols.
As a seasoned trader, I love to see how the market tends to react to the 0.382 level over and over.
Here’s the amazing thing about it…
It’s a strategy which you will learn once and would then suddenly see it all over the place on every chart you apply the Fibonaccis to…
And with that knowledge, you can try to predict what the market is going to do next and place your trades accordingly.
Let’s dive in…
In the world of trading, Fibonacci retracement is a technical analysis tool used to predict support and resistance levels.
It’s named after Leonardo Bigollo – the man responsible for making Arabic numerals popular (yes, they are called “numbers” by normal people). He also shined a light on what he called “Spiritual Vibration” and the pattern of creation he was the first credited with measuring. The sequence itself gives light to his theory that the growth of numbers and adding them on to one another uncovers a pattern that for bizarre reasons.
The Fibonacci sequence of numbers, whose ratios provide predictive price level patterns to which the market tends to react. Traders often place trades with this information to target potential profits.
The 0.382 Fibonacci Level
The 0.382 is a Fibonacci retracement level and it’s called the up retracement zone when it is in an uptrend or the down retracement zone when it is in a downtrend.
It’s a simple ABCD pattern which helps us predict where the market will go next based upon its location within the AB boundary on the Fibonacci.
In simple terms, the market often likes to treat this level like a magnet…until it gets there.
Here’s what this pattern looks like…
Market Reacting at the 0.382 Level
As seen in the image above, the market rallies from A to B level and falls back to the 0.382 level.
You can see this type of pattern play out on all charts and on hourly, daily, weekly, and even monthly time-frames.
So, whenever we see the market (or any asset) passing forming a high or “B” level, we can predict there’s likely going to be a pull-back or retracement back to the 0.382 level.
Once we understand this, voila – we can now place our trades to target some quick potential profits OR make long term position plays.
Here’s how you can use this strategy on your charts…
Using Smart Fib on SmartTrader
Open up a new chart on your SmartTrader trading platform on which you want to place the smart Fibonacci.
Next, go to the indicators list located at the top of the chart and click on the ‘Smart Fib’ button. This step will automatically clock the Fibonacci levels on your chart.
Here’s how it should look:
Now have a look at the 0.382 Fibonacci level that’s indicated with the middle red line and notice how the markets reacted at these levels.
After rallying, the markets retraced and came back to the 0.382 Fibonacci level.
What this signal shows us is that we can look to sell at the 0.382 level if the market is falling. So there’s a good chance that the market can retrace back to the 0.382 level and one can target potential profits at this level by setting up a sell trade.
So, that was one of the simple Fibonacci strategies which you can use to predict market trends and target some potential profits.
It’s an amazing indicator of the market trend and can play a key role in influencing the uptrends and downtrends on multiple time frames.
Do check it out the next time you’re on your charts!
I have also recorded a short video on this concept, which you should WATCH HERE >>
For more such Forex strategies and trades, you can check out my Analyst On Demand Trading Room.
Every week, within the trading room, I’ll take you through real market conditions and guide you on your journey to becoming a consistent trader across the board. Access it by clicking HERE >>
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for everyone. Past performance is not indicative of future results. The high degree of leverage can work against you as well as for you. Before getting involved in foreign exchange you should carefully consider your personal venture objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial deposit and therefore you should not place funds that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. The information contained in this web page does not constitute financial advice or a solicitation to buy or sell any Forex contract or securities of any type. MTI will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from use of or reliance on such information.