Fibonacci Retracement on EUR/USD 4H Time Frame

Fibonacci Retracement is a highly useful tool in technical forex analysis, and the EUR/USD pair on a 4H time frame is an ideal place to apply it. Below, we will discuss how to use Fibonacci Retracement on EUR/USD with a 4H time frame, complete with examples and trading strategies you can use.

What is Fibonacci Retracement?

Fibonacci Retracement is a technical tool used to identify potential support and resistance levels based on Fibonacci ratios. The commonly used Fibonacci ratios are 23.6%, 38.2%, 50%, 61.8%, and 100%.

Functions of Fibonacci Retracement:

• Determine Support and Resistance Levels: Identifies areas where prices may reverse or continue the trend.
• Set Target Profit and Stop Loss: Helps in planning TP and SL levels based on retracement levels.

Steps to Use Fibonacci Retracement on EUR/USD 4H TF

1. Choose Time Frame and Identify Trend
• Time Frame: 4 Hours (H4)
• Reason: The H4 time frame provides a more stable trend picture and reduces noise compared to lower time frames like M5 or M15.
2. Identify Swing High and Swing Low
• Swing High: The highest point of the relevant price movement.
• Swing Low: The lowest point of the relevant price movement.
• Example:
• Swing High: 1.3750
• Swing Low: 1.3458
3. Draw Fibonacci Retracement Lines
• Fibo 0%: Draw from Swing Low
• Fibo 100%: Draw to Swing High
• Steps to Draw Fibonacci:

1.                  Open the EUR/USD chart on H4 TF.

2.                  Identify the relevant Swing High and Swing Low.

3.                  Use the Fibonacci Retracement tool and draw from Swing Low to Swing High.

4.                  Observe the Fibonacci levels that appear on the chart.

Example Chart:

Analysis and Trading Strategies Using Fibonacci Retracement

1. Identify Fibonacci Levels
• Fibonacci Levels:
• 0%: 1.3458 (Swing Low)
• 23.6%: 1.3544
• 38.2%: 1.3593
• 50%: 1.3604
• 61.8%: 1.3615
• 100%: 1.3750 (Swing High)
2. Entry and Exit Strategies Based on Fibonacci Levels

Scenario 1: Buy Setup

• Condition: The price is in an uptrend and touches the 38.2% or 50% Fibonacci level as support.
• Entry: Open a Buy position if the price finds support at the 38.2% or 50% level and shows a bullish signal (e.g., bullish candlestick pattern).
• Target Profit (TP): 23.6% level or higher.
• Stop Loss (SL): A few pips below the 61.8% Fibonacci level or previous low.

Example:

Fibonacci Level	Price	Strategy
38.2%	1.3593	Buy
TP	1.3544	Target Profit
SL	1.3615	Stop Loss

Scenario 2: Sell Setup

• Condition: The price is in a downtrend and touches the 38.2% or 50% Fibonacci level as resistance.
• Entry: Open a Sell position if the price finds resistance at the 38.2% or 50% level and shows a bearish signal (e.g., bearish candlestick pattern).
• Target Profit (TP): 61.8% level or lower.
• Stop Loss (SL): A few pips above the 23.6% Fibonacci level or previous high.

Example:

Fibonacci Level	Price	Strategy
38.2%	1.3593	Sell
TP	1.3520	Target Profit
SL	1.3615	Stop Loss

3. Analyze Fibonacci Levels
• 23.6% Level: If the price holds at this level, it is likely to continue the trend.
• 38.2% and 50% Levels: These levels are often areas of reversal or strong support/resistance.
• 61.8% Level: Usually a strong reversal level; if the price breaks this level, the potential to reach the 100% level is higher.
4. Using Fibonacci in Combination with Other Indicators
• To increase the accuracy of trading signals, you can combine Fibonacci Retracement with other indicators such as:
• Moving Average (MA): To confirm the trend direction.
• Relative Strength Index (RSI): To measure trend strength and overbought/oversold conditions.
• MACD: For clearer buy or sell signals.

Example Combination of Indicators:

Indicator	Function
MA	Filter buy or sell signals
RSI	Indicate overbought or oversold conditions
MACD	Provide clearer buy or sell signals

Advantages and Disadvantages of Using Fibonacci Retracement

Advantages:

• Simple and Easy to Use: Fibonacci Retracement is easy to apply clearly on charts.
• Provides Key Levels: Helps in determining support and resistance levels.

Disadvantages:

• False Signals: Sometimes, Fibonacci levels can give false signals, especially in unclear market conditions.
• Requires Confirmation: Often needs to be combined with other indicators for signal confirmation.

Fibonacci Retracement is a highly useful tool for technical analysis on the EUR/USD pair in the 4H time frame. By understanding how to draw Fibonacci and analyze its levels, you can set effective trading strategies to achieve profit.

Share: