Traders use Fibonacci retracement in different ways, however, the most important Fibonacci retracement levels are the 50% and the 61% Fibonacci retracements, knowing how to use this tool in conjunction with Japanese candlestick will definitively maximize your profit potential.
According to chart technicians, the most major moves retrace around 50 % or 61 % Fibonacci retracement, this knowledge will provide you with the ability to predict with high accuracy the next major move in a trending market.
The strategy is very simple, you define a clear uptrend or downtrend, and then, you define major corrective levels by using Fibonacci retracement tool, if you see an engulfing bar pattern matches up with
50% or 61 % levels, it is a powerful price action trading signal like we see in the chart below:
In the example above, the engulfing bar price action signal matches up with the 50 % and 61 % Fibonacci retracement level, the resistance level that becomes support is another confirmation to take this high probability setup.
This trading strategy is very powerful, here is another example below that illustrates the power of 50% and 61 % Fibonacci retracement:
Trading the market from 50% and 61% Fibonacci levels means you are trading from better price levels, as a result, you will put as many probabilities in your favor as possible, and that will allow you to become one of the most successful traders.