Forex technical analysis: the combined use of Fibonacci and trend lines
Another tool used with the Fibonacci tool set is trend line analysis. After all, when the market is in a trend, the Fibonacci level has the most obvious effect, so this is also much more instructive for trading.
Remember, whenever the price is in a downward or upward trend, traders can use the Fibonacci retracement as an auxiliary tool to enter the market during the trend.
The figure below is an hourly chart of AUD/JPY. As shown, the exchange rate has been testing short-term uptrend line support in the past few days.
You start to mutter, “Well, this uptrend line is working well. I plan to buy AUD/JPY, even if this is only a short-term transaction. I think I will buy it when the exchange rate tests the trendline again.”
However, before you intend to enter the market, why not open your foreign exchange toolbox and take out the Fibonacci tool? Let us see if we can enter at a more precise entry point.
After selecting the low point of 82.61 and the high point of 83.84, we use the Fibonacci tool to draw the corresponding Fibonacci retracement level.
Notice how the 50.0% and 61.8% Fibonacci retracement levels are divided by the upward trend line.
Can these prices provide potential support for the exchange rate? There is only one way to find out.
Did you guess it? AUD/JPY held steady at the 61.8% Fibonacci retracement level, after which the exchange rate rebounded again. If you place some orders in this position, you will find the perfect entry point.
A few hours after the AUD/JPY test trend line, the exchange rate made a strong attack, and then broke through the wave highs.
Now, are you not happy with the Fibonacci tool in your foreign exchange toolbox?
As you can see, the use of the Fibonacci tool is indeed quite worthwhile, even if you are planning to enter the market when the exchange rate tests the upward trend line again.
The combination of diagonal and linear support or resistance levels may mean that other traders are paying attention to these prices.
However, it should be noted that, like other drawing tools, how to draw a trend line is also quite subjective.
You can’t tell other traders exactly how to draw trend lines, but you can know one thing-trends exist.
If you see that the trend is going on, you should find a way that will give you a better chance to profit. You can use Fibonacci tools to help you find potential entry points.