FOREX THEORY
Identifying Retracements
A popular way to identify
retracements is to use Fibonacci levels.
For the most part, price
retracements hang around the 38.2%, 50.0% and 61.8% Fibonacci retracement
levels before continuing the overall trend.
If price goes beyond these levels,
it may signal that a reversal is happening. Notice how we didn’t say will.
As
you may have figured out by now, technical analysis isn’t an exact science,
which means nothing certain… especially in forex markets.
In this case, price took a breather
and rested at the 61.8% Fibonacci retracement level before resuming the
uptrend. After a while, it pulled back again and settled at the 50% retracement
level before heading higher.
Another way to see if price is staging a reversal is to use pivot points
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