support and resistance Fibonacci retracements how to draw fibs because the application of technical indicators can vary among charting software packages we usually don't cover how you apply it give an indicator on your charts regarding Fibonacci retracements however it's worth demonstrating the general mechanics of how you draw them because you'll gain a better understanding of what fibs are really measuring and how they're defined by whatever prior trend you select you can apply fibs to your charts basically in a 3-step process you select a high and low point for a given up or down trend your charting software then calculates where a retracement of 23.6% 38.2% 50% 61.8% and 100% of that trend would occur and it then draws in lines at those price levels per Fibonacci Theory these are where the future counter trend is most likely to pause or reverse so how do we apply fibs to your charts whenever charting software instructions you will be using will describe the exact steps needed they usually involve just doing the following select the Bonacci retracements from your menu of available technical indicators indicate the price range and time period of prior trend in question by highlighting it with a simple click and drag of your mouse let's see some examples in the first example we will draw fibs support and resistance for an uptrend based on a prior downtrend configure 4.13 below we wanted to locate the likely fibs support and resistance points as the euro US dollar rallied higher and thus retrace the prior downtrend that occurred from December 2009 to June 2010 this is highlighted by the falling dotted line on the left side of the chart the horizontal yellow lines marked those FIB retracement levels that should become support and resistance points in order to do that we select the Fibonacci retracements option from our menu of technical indicators at that point the mouse cursor will change appearance to prompt us to highlight or define the range of the downtrend that we're examining when that happens place your mouse cursor where the downtrend began left click and drag the cursor down and to the right until it hits where the downtrend ended then release the left mouse button the yellow dotted line shows the price range that was highlighted now you can choose the absolute highs and lows of the candle wicks or use the highest and lowest closing prices per the candles bodies on each end of the downtrends range the horizontal yellow FIB retracement lines that appear these serve is support and resistance zones for whatever uptrend that follows note the dotted line that highlights the downtrend on which these fittings are based for example the 23.6% fib line means that price is risen or recover or retraced twenty three point six percent of the prior downtrend as with any other kind of supported resistance each level is resistance until it's decisively breached and then it becomes support unless price falls back below it notice how the 23.6% fib line the second yellow line from the bottom indeed looks like it's twenty three point six percent or about twenty five percent of the total downtrend note how the fourth line up looks like it's about in the middle of the downtrend that's because it's the fifty percent retracement level marking where half of the downtrend has been recovered or reversed in the second example we're drawing fibs support and resistance for a downtrend based on a prior uptrend to plot fib lines for a downtrend you follow the same steps as above the only difference is that in step number three we highlight the range and duration of a prior uptrend that means we place our mouse cursor at the bottom of wherever the relevant uptrend began left-click and drag the mouse up into the right and release the left mouse button at the high of the uptrend to solidify our understanding let's go through those steps we refer to the graph below the mouse cursor changes appearance to prompt us to highlight or define the range of the relevant uptrend to do that place your mouse cursor where the uptrend began left click and drag the cursor up and to the right until the top of the uptrend then release the left mouse button again the dotted line shows the price range highlighted here – you can choose the absolute highs and lows or use the highest and lowest closing prices for the candles on each end of the trends range the FIB retracement lines that appear is blue horizontal lines ignore the yellow ones for now we'll explain those below these blue lines indicate support and resistance zones for what downtrend that follows note the dotted line that highlights the uptrend in which these fit lines are based for example the second blue line from the top is the 23.6% fib line and it indeed is about 25% down from the high of the prior uptrend when price falls to that level it means that price has fallen 23.6% from its recent high in other words it is retraced 23.6% of the prior uptrend like any other kind of support and resistance each level is resistance until it's decisively breached and then it becomes support unless price falls back below it now look again at the graph where do those longer yellow lines come from these longer yellow lines are the fibs based on the longer-term downtrend shown in Figure 4.13 why are these two sets of fibs that's a good question it brings us to an important point which we'll cover in our next lesson