I personally believe that every forex trader should at least have a basic understanding of fibonacci analysis and the key levels to watch out for, which in my view are the 50% and the 61.8% levels. By plotting these two levels you can form an idea of what kind of price targets you should aim for whenever you trade any price reversals.

For example if the price has moved 1000 pips (from the low point to the high point) and is reversing back downwards quite strongly then a 50% retracement, ie 500 points, would be a good place to exit your position.

However some traders like to wait for these retracement levels to be hit before entering a new position in the direction of the initial trend. Now this is where fibonacci analysis can be a little bit hit and miss.

While you will find plenty of instances where the price has bounced nicely off of the 50% or 61.8% retracement levels and resumed it's trend, unfortunately there are just as many instances where the price has ignored these levels and just gone straight through them.

To demonstrate this point you only have to look at the recent movement of the GBP/USD pair. As you can see from the chart below the pair moved from a low point of 1.6339 all the way up to 1.7044.

It then reversed back downwards but although both the 50% and 61.8% retracement levels were both taken out (and therefore would have been good exit points), the price failed to bounce back upwards from either of these levels, so those traders who were banking on a continuation trend from either of these levels will have been left disappointed because the price didn't respond to them at all.

So the point I want to make is that although fibonacci levels are good for determining possible exit points, they are often nowhere near as reliable when you are looking for entry points for continuation trends.