An intraday Forex chart shows foreign currency price movements within the trading day. Fibonacci levels are horizontal price levels between the high and low points of an upward or downward price move that represent potential turning points. Five different Fibonacci levels are set at different percentages of the distance between the two points. These percentages correspond to ratios found in the Fibonacci number sequence discovered about 800 years ago by Italian mathematician Leonardo Fibonacci. Currency prices often move in proportions that reflect these ratios. When a currency reverses from an initial price move, it often pulls back to a Fibonacci level and then turns to continue in its original direction.
Log in to your Forex trading software. Click a currency pair and click “New Chart” or a similar button. For example, assume you want to view an intraday chart of the euro versus the U.S. dollar. Click that currency pair and click “New Chart.”Step 2
Click one of the intraday time frames at the top of screen. A time frame is the unit of time that each bar or candlestick on the chart represents. An intraday time frame is typically designated in minutes, such as five minutes or 15 minutes. In this example, assume you click the 15 minute time frame.Step 3
Identify a low price point toward the left of the chart from which the currency began trending higher. Identify the major high point to the right of that at which the price trend paused and reversed direction. Alternatively, find a high point that designates the start of a downward trend and a low point toward the right at which the price has reversed. In this example, assume the euro began an upward trend at a low of 1.3050 and hit a high of 1.3175 before reversing direction.Step 4
Subtract the low point from the high point. In this example, subtract 1.3050 from 1.3175 to get 0.0125.Step 5
Multiply each of the five Fibonacci percentages by your Step 4 result. Round each result to four decimal places. The Fibonacci percentages are 23.6 percent, 38.2 percent, 50 percent, 61.8 percent and 76.4 percent. In this example, multiply 23.6 percent, or 0.236, by 0.0125 to get 0.003. Multiply the others to get 0.0048, 0.0063, 0.0077 and 0.0096.Step 6
Subtract each Step 5 result from the high price point of the upward trend to calculate the Fibonacci levels. Alternatively, if you identified a downward trend, add each Step 5 result to the low price point to determine the Fibonacci levels. Concluding the example, subtract 0.003 from 1.3175 to get 1.3145. The other Fibonacci levels are 1.3127, 1.3112, 1.3098 and 1.3079. This means that when the price reaches one of these levels after falling from the 1.3175 high, it may potentially turn and continue on the original upward trend.
- Use the drawing tool in your trading software to draw horizontal lines at each Fibonacci level to easily identify them.
- Fibonacci levels aren’t always exact. A price might move past one Fibonacci level without turning but turn at the next. A price sometimes turns at a point that’s slightly higher or lower than a Fibonacci level. Sometimes prices ignore these levels completely.