Preschool>= Lesson Status ?
Kindergarten>= Lesson Status ?
Elementary>= Lesson Status ?
Grade 1 Support and Resistance Levels
Grade 2 Japanese Candlesticks
Grade 3 Fibonacci
Grade 4 Moving Averages
Grade 5 Common Chart Indicators
Middle School>= Lesson Status ?
Grade 7 Important Chart Patterns
Grade 8 Pivot Points
Summer School>= Lesson Status ?
High School>= Lesson Status ?
Grade 9 Trading Divergences
Grade 10 Market Environment
Grade 11 Trading Breakouts and Fakeouts
Grade 12 Fundamental Analysis
Grade 13 Currency Crosses
- What is a Currency Cross Pair?
- Crosses Present More Trading Opportunities
- Cleaner Trends and Ranges
- Taking Advantage of Interest Rate Differential
- Obscure Crosses
- Planning Around News and Fundamentals
- Creating Synthetic Pairs
- Euro and Yen Crosses
- How to Use Crosses to Trade the Majors
- How Cross Currency Pairs Affect Dollar Pairs
- Summary: Currency Crosses
Grade 14 Multiple Time Frame Analysis
Undergraduate>= Lesson Status ?
- Why Keep a Trade Journal?
- Benefits of Keeping a Journal
- What Should You Record in Your Journal?
- Potential Trading Area
- Entry Trigger
- Position Sizing
- Trade Management Rules
- Trade Retrospective
- Trading Journal Statistics
- Reviewing Your Trading Journal
- Difficulties of Keeping a Trade Journal
- Summary: Keeping a Trade Journal
Graduation>= Lesson Status ?
- Which Trading Style is Best for You?
- Which Currencies Should You Trade?
- What is Your Level of Trading Experience?
- Should You Be a Discretionary, Mechanical, or Hybrid Trader?
- What Kind of Mechanical System Suits Your Personality?
- What is Your Attitude Towards Risk?
- What Kind of Stop Suits Your Trading Style?
Combining Fibs with Support and Resistance
Like we said in the previous section, using Fibonacci levels can be very subjective. However, there are ways that you can help tilt the odds in your favor.
While the Fibonacci tool is extremely useful, it shouldn't be used all by its lonesome self.
It's kinda like comparing it to NBA superstar Kobe Bryant. Kobe is one of the greatest basketball players of all time, but even he couldn't win those titles by himself. He needs some backup.
Similarly, the Fibonacci tool should be used in combination with other tools. In this section, let's take what you've learned so far and try to combine them to help us spot some sweet trade setups.
Are y'all ready? Let's get this pip show on the road!
One of the best ways to use the Fibonacci tool is to spot potential support and resistance levels and see if they line up with Fibonacci retracement levels.
If Fib levels are already support and resistance levels, and you combine them with other price areas that a lot of other traders are watching, then the chances of price bouncing from those areas are much higher.
Let's look at an example of how you can combine support and resistance levels with Fib levels. Below is a daily chart of USD/CHF.
As you can see, it's been on an uptrend recently. Look at all those green candles! You decide that you want to get in on this long USD/CHF bandwagon.
But the question is, "When do you enter?" You bust out the Fibonacci tool, using the low at 1.0132 on January 11 for the Swing Low and the high at 1.0899 on February 19 for the Swing High.
Now your chart looks pretty sweet with all those Fib levels.
Now that we have a framework to increase our probability of finding solid entry, we can answer the question "Where should you enter?"
You look back a little bit and you see that the 1.0510 price was good resistance level in the past and it just happens to line up with the 50.0% Fib retracement level. Now that it's broken, it could turn into support and be a good place to buy.
If you did set an order somewhere around the 50.0% Fib level, you'd be a pretty happy camper!
There would have been some pretty tense moments, especially on the second test of the support level on April 1. Price tried to pierce through the support level, but failed to close below it. Eventually, the pair broke past the Swing High and resumed its uptrend.
You can do the same setup on a downtrend as well. The point is you should look for price levels that seem to have been areas of interest in the past. If you think about it, there's a higher chance that price will bounce from these levels.
First, as we discussed in Grade 1, previous support or resistance levels would be good areas to buy or sell because other traders will also be eyeing these levels like a hawk.
Second, since we know that a lot of traders also use the Fibonacci tool, they may be looking to jump in on these Fib levels themselves.
With traders looking at the same support and resistance levels, there's a good chance that there are a ton of orders at those price levels.
While there's no guarantee that price will bounce from those levels, at least you can be more confident about your trade. After all, there is strength in numbers!
Remember that trading is all about probabilities. If you stick to those higher probability trades, then there's a better chance of coming out ahead in the long run.
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- Fibonacci Who?
- Fibonacci Retracement
- When Fibonacci Fails
- Combining Fibs with Support and Resistance
- Combining Fibs with Trend Lines
- Combining Fibs with Candlesticks
- Fibonacci Extensions
- Placing Stops with Fibs
- Summary: Fibonacci