Retracement
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Retracement & Extension Levels
Retracement and Extension levels are essentially the same thing, just looked at in slightly different fashions. Traders look at retracement levels to figure likely points of support and resistance, while they look at extension levels as points to take profit. O.618, 0.50, and 0.382 are primary retracement levels while 0.236 and 0.764 are secondary ones. The primary profit taking extension levels are 1.382 and 0.618 (moving upwards from the Swing High).
The idea behind retracement is simple: when a currency is falling it will usually bounce back when it reaches one of the Fibonacci retracement levels, so if you buy either at or just before that point while it’s on the way down, you should be able to catch the wave when it turns back up and sell at a profit.
Similarly you can use the extension levels to determine when it’s likely to reverse again, and use that to pick your selling point.
It sounds great, but how do you do that?