Forex technical analysis: the combined use of Fibonacci and support resistance
As we discussed in the previous lesson, the use of Fibonacci price levels is very subjective. However, you still have ways to reduce the chances of using the Fibonacci tool.
Although the Fibonacci tool is very useful, you should not only use this tool to make operational strategies.
Fibonacci tools are like NBA superstar Kobe Bryant. Kobe is the greatest basketball player no matter what era he puts in, but he still has a hard time earning this honor. He needs some support.
For the same reason, the Fibonacci tool should also be used with other tools. In this lesson, let us review what you have learned so far, and combine what you have learned to help you make profitable transactions.
Are you ready now? Let’s start now!
One of the best ways is to use the Fibonacci tool to mark potential support and resistance levels and see if they are consistent with the Fibonacci retracement level.
If the Fibonacci level is already a resistance and support level, and you use it in combination with some other price areas and these levels are also closely watched by other traders, then the probability of the price rebounding from these areas is Greatly increased.
Let’s see how to use Fibonacci levels and support resistance. The following figure is the USD/CHF daily chart:
As shown in the figure, the USD/CHF is in an upward trend recently. You therefore intend to use the current trend of USD/CHF to place orders.
But the question is, when should you enter? So you started to use the Fibonacci tool to select the January 11 low of 1.0132 and the February 19 high of 1.0899 as the band lows and highs of the exchange rate.
Now, under the deconstruction of all these Fibonacci prices, your graph looks quite beautiful.
Now that we have a framework that enhances our ability to find stable entry points, we can now answer the question “Which position should you enter”.
You review the past movements of the exchange rate, and you find that 1.0510 has a good resistance level in the past, and this level coincides with the 50% Fibonacci level. Since the early resistance of 1.0510 has been broken, then it should play a supporting role, so this level is a good buying point.
If you place a buy order near the 50% Fibonacci level, you will celebrate it.
The USD/CHF movement has experienced some tense moments, especially when the exchange rate tested support for the second time on April 1. The exchange rate tried to fall below that level, but ultimately failed to close below the line. Eventually, USD/CHF broke through the highs of the band and regained its upward trend.
You can also use the trading model in a downward trend. The point is that you should choose those price levels that have acted as resistance or support in the past. If you can take this into account, the chances of a price rebounding from these prices will increase greatly.
First of all, as we discussed in the first grade course, the previous resistance or support level will be good buying or selling areas, because other traders will also pay close attention to these areas.
Second, we already know that many other traders are also using Fibonacci tools, and they are always ready to enter the market at these Fibonacci levels.
Since traders are paying attention to the same support and resistance levels, the number of orders set at these prices is bound to be very considerable.
Although this does not guarantee that prices will rebound from these areas, at least you will be more confident in your trading.
Remember, trading is all about probability. If you can seize trades with high odds, your chances of winning in long-term trades will increase greatly.