Fibs are a funny thing as they have no real tangable reason why they work, they work pretty much on the power of them working.
So many people watch the fibs, particularly the 38% and 68% ones, that it makes them pretty reliable to trade around.
When there is a break though and a close of a fib there is about a 70% chance it will hit the next one.
Fibs are always drawn from two extremes, so you take the low and the high of a move and draw you’re fibs on there.
On this chart you can see how the fibs were respected and how we may have traded this using the fibs as target areas.
At the 1.625 area price found strong resis and there was a stong case for a short.
Where a lot of new traders make the mistake of doing is picking their target based on what they want to win.
They have a 20 pips a day target so they go for 20 pips for example.
This misses huge profit areas as well as you missing trades where you have very high potential reward with tiny risk - and getting into they situations often is a very good way to get ahead in forex.
Here when price shows signs of a reversal/retrace we have a high chance of it falling to the 38% fib, and a even higher expectation of it at least getting to the 23%.
I always have a couple trades where I am targeting progressive numbers of pips and look to have a runner to go for maxiumum pips.
When the price seems to find strong support on the 50% fib it is very realistic to taget at least the 38% fib which is close to 100 pips and you can then choose to take profit there or move up the stop and look to ride a potential move.
This set up is happening again and it looks like a very nice expecation trade to short from this area and target at least the 23% fib (about 150 pips) or the 38 fib (about 300 pip)