Fibonacci retracements are often used as a part of a trend-trading strategy. In this scenario, traders observe a retracement taking place within a trend and try to make low-risk entries in the direction of the initial trend using Fibonacci levels. Traders using this strategy anticipate that a price has a high probability of bouncing from the Fibonacci levels back in the direction of the initial trend.
A trend line may be a technical analysis tool wont to identify the trend direction. That is the Uptrend and the downtrend. Fibonacci retracement levels often indicate reversal points with uncanny accuracy. However, they’re harder to trade than they appear on reflection . These levels are best used as a tool within a broader strategy. Ideally, this strategy is one that appears for the confluence of several indicators to spot potential reversal areas offering low-risk, high-potential-reward trade entries.