As you already know, Fibonacci retracement levels work best when the market is trending.
So what better tool to combine it with other than TREND LINES.
Trendlines being such an important part technical analysis, when combined with the Fibonacci indicator, can produce trades that have the HIGHEST probability of winning.
Intrigued? I don’t blame you!
Let me show you how this can be done.
The main aim of the Fibonacci retracement is to signal the most reliable support and resistance levels.
But what if I told you that you can confirm the signal by drawing a trend line.
And if the trend line and the Fibonacci levels collide, this point may become the most forceful support or resistance level.
Let’s recap how you can do this in practice. Stick to the following 5 points and you can’t go wrong.
Rule #1 Find a Trending Currency Pair
Rule #2 Draw a Trend Line
Rule #3 Draw Fibonacci From Swing low to swing High
Rule #4 Wait for Price level to Hit Trend Line
Rule #5 Place your trade
Rule #6 Withdraw your $$$$
Here’s a Monthly chart of EUR/USD.
As you can see, price has been respecting a short term rising trend line over the past month.
If you look even closer, you’ll see that we plotted the Fibonacci retracement levels by using the Swing Low and the Swing High.
Notice how the Trendline and Fib levels intersected at 61.8%?
Could these levels serve as potential support levels? There’s only one way to find out!
If you had set some orders at that level, you would have had the perfect entry!
And that’s what the combination of a diagonal and a horizontal support or resistance level can do!
It’s good to have this in your trading toolbox, aye?