One common technical FX market indicator used by fx traders is the Fibonacci indicator. It is based upon an infinite number sequence, which was discovered by 13th Century mathematician Leonardo Fibonacci. Basically you get 2 numbers like 1,2 and add them together and you get the 3rd number in the sequence. For example 1+2=3, 2+3=5, 5+3=8, 8+5=13. The fibonacci retracement levels are derived from the fibonacci number sequence and some of the ratios.
Fibonacci Retracement Levels:
61.8 % key level
38.2% key level
FX traders that use this method tend to pull back or reverse at key Fibonacci retracement levels.
Traders that use this method draw from the major high to the end of the move. There are 3 values that you need to concern yourself with, they are, 38.2%,50.0%, and 61.8%
However the 2 most important values are 38.2% and 61.8% What you are tying to do is gauge support and resistance. In an up trade you want to buy dips because you think it is going to go higher. So you estimate were the dip might end. The price tends to retrace 38.2% to 61.8% of the prior move before continuing in the same direction. With this technique you are trying to gauge support and resistance.
The fibonacci mathemathical concept of 38.2% and 61.8% retracements, numbers, ratios or percentages are a part of nature. Believe it or not nature and forex trading have a correlation. The fibonacci concept can be seen in Mona Lisa's face, a nautilus shell and in the circumference of a sunflower seeds. This principle is also known as nature's law.
A good place to learn this technique or sharpen your skills is will an automated software application and a demo account. Remember when you trade FX you with have winning trades and losing trades. So, if in doubt get out and don't trade more money then you are willing to lose.
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Since the aforementioned resource is no longer operational, I figured I'd update this thread with a link to our Fibonacci Trading guide, which is available for free. It covers most aspects of Fibonacci trading that are relevant to traders. You can find the guide here.