How to Use Auto Fibo Retracement On the Forex Market

As you’ve probably guessed from its name, Auto Fibo Retracement is a technical tool designed to automatically plot Fibonacci levels on a chart.

Before reading the article and writing your questions in the comments section, I recommend to watch this video. It’s not long but covers the biggest part of questions on the topic.

Fibonacci levels are equally helpful across all timeframes and for all underlying assets. With Auto Fibo Retracement, you can easily identify Fibonacci levels on any chart.

Another important thing about Auto Fibo Retracement is that it shows the areas where a retracement is coming to an end and a trend is likely to continue. The indicator paints such areas green.

The ability to detect retracement levels allows a trader to recognize high-profit entries.

Acting as support and resistance levels, retracement levels help a trader make the right trading decision. In other words, they issue a confirmation signal.

Furthermore, retracement levels are usually the areas where candlestick and price action patterns tend to play out just perfectly.

By ignoring or underestimating retracement levels, you run the risk of missing some lucrative trading opportunities. You wouldn’t want that, right?

However, no smart indicator can help you identify Fibonacci levels if you lack the knowledge and experience required to open effective positions.

Fibonacci levels are based on local extreme points. The problem is that novice traders often make mistakes in identifying extreme points and build retracement levels incorrectly. As a result, they suffer losses and blame their failures on Auto Fibo Retracement.

If you’re a beginner, it might be a good idea to apply additional indicators to make sure your analysis is correct.

Auto Fibo Retracement indicator

Download the Auto Fibo Retracement indicator and add it to the “Indicators” folder in your MT4 trading platform.

Restart the platform and search for the “AUTO FIBO RETRACEMENT-V2” file among user indicators. Click on the file.

Your chart with Auto Fibo Retracement on it should look like this:

Signals

Fibonacci levels are pretty much the same as support/resistance levels. However, in the case of Fibonacci levels, traders mostly trade pullbacks from strong retracement levels (e.g., 38.2, 50.0, 61.8) in the direction of a trend.

To make it clear for you, let’s take an example.

1. If a price in a bullish market goes down and pulls back from a strong retracement level (2, 50.0, 61.8), we should go long.
2. If a price in a bearish market goes up and pulls back from a strong retracement level (2, 50.0, 61.8), we should go short.

Keep in mind that level 23.6 is where strong reversal patterns (Double Top, Double Bottom, Head, and Shoulders, etc.) are likely to occur.

While this level is considered weak, reversals and trend continuations at 23.6 should be traded like at other levels.

Plus, you can use the indicator’s retracement levels as target points. When a price breaks out of one level, it heads for the next one. It’s a great opportunity to benefit from pullbacks by opening short-term countertrend trades.

How to set up Auto Fibo Retracement v2

Auto Fibo Retracement offers basic settings that allow you to customize Fibonacci levels on your chart:

Here are the basic settings:

• Fibo_Color: You can change the color of Fibonacci levels;
• Width: You can change the thickness of lines;
• Style: You can choose between solid and dotted lines;
• UnretracedZone_Color: You can change the color of possible reversal areas;
• ShowUnretracedZone: You can enable (True) or disable (False) the feature that paints retracement zones green.

Please note that the above settings are only available when you add new Fibonacci levels on your chart.

Auto Fibo Retracement is a great tool that can give you a hand plotting support and resistance levels on a chart. While it’s up to you to decide how you’ll be using this indicator, it’s a common practice to pair graphic analysis with indicators. This is what seasoned traders do to minimize risks and increase the number of profitable trades.