To combine Fibonacci Retracement with Support and Resistance is a great way to enhance your trading strategy.Andrew Lockwood, Mentor at HowToTrade.com
As we mentioned in the previous chapter, while the Fibonacci retracement tool can be super useful, it should NOT be used all by its lonesome self.
Instead, combining Fibonacci retracement tool with other indicators can help you increase your chances for profits.
Seriously, it can make wonders when combined.
It’s like comparing it to the football legend Lio Messi.
He is one of the greatest footballers of all time, but he couldn’t have won all those titles by himself.
He needed some backup… or shall we say support? 😉
Similarly, the Fibonacci retracement tool should be used in combination with other tools.
Anything to tilt the odds in your favour… AM I RIGHT?!
Ready to get this pip show started?
Trading using Fibonacci retracement with support and resistance is quite easy.
All you have to do is to wait for zones where both collide.
If Fibonacci levels are already support and resistance levels, and you combine them with other price areas that many other traders are watching, then the chances of price bouncing from those areas are much, MUCH higher.
But that’s enough talk. Let’s see what combining support and resistance levels with Fibonacci levels. looks like on an actual forex chart. Below is an hourly chart of EUR/USD.
Looks like it’s in a downtrend, right?
Maybe you’re thinking you want to get in on this short EUR/USD bandwagon.
But the question is, when and where should you enter…
Time to bust out your Fibonacci retracement tool and set your Swing Low and Swing High.
The chart looks much sexier with those Fibonacci levels anyway, doesn’t it?
If you look closer, you can see that the 1.13479 price was a strong support level and it just happens to coincide with the 38.2 Fibonacci retracement level.
A good place to sell?
I would say so.
Let’s see what would have happened if you had placed an order around that level.
Ta da! You would have been a pretty happy camper.
You can do the same setup on an uptrend as well. The point is to 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.
Firstly, with traders looking at the same support and resistance levels, there’s a good chance that there will be a number of orders around those levels.
Secondly, with many traders using the Fibonacci retracement tool, there is a big chance they are looking to jump in on these Fibonacci levels themselves.
And whilst there is no guarantee that price will actually bounce from these levels, you can at least have more faith in your trade.
At the end of the day, trading is all about probabilities and if you combine the two analysis tools, the chances are that the signals you get are more reliable.
If you stick to those higher probability trades, then there’s a better chance you’ll come out the other (better) end.