As we have learned before that this Fibonacci retracement technique is an analytical technique that is very useful in trading but it is not always useful if we do not use it in the right way without using the help of other techniques. This means that this technique cannot stand alone but needs to be combined with other techniques in order to provide optimal results.
Like what can be conveyed here is like a soccer player, Ronaldo, who will not be able to score goals against the opponent’s goal without the help of other players as well as the Fibonacci retracement method.
Fibonacci Retracement with Support and Resistance
One of the best ways to use the Fibonacci retracement method is to determine the potential point of support and resistance levels and then see if they are in line with the Fibonacci retracement. If the Fibonacci level becomes a support and resistance level and then you combine it with the price area that many traders see, the reflection of the price from this price area is very big.
OK, let’s look at an example of a combination of support and resistance levels with a fibonacci retracement of the USD / CHF daily chart below.
As can be seen that the market conditions are uptrend and if you see a green candlestick then you definitely want to enter the market by opening BUY USD / CHF positions.
But wait “what is the right price area to enter the market?” by using the Fibonacci retracement this answer will be answered. By using the price of 1.0132 on January 11 as a swing low and 1.0899 on January 19 as a swing high point you will get a very beautiful graph as below.
Now we have a framework to determine the right area to open a position and be ready to answer the question “what is the right price area to enter the market?”
After looking at the chart you find that the 1.0510 price point is a resistance level in the past and in line with the Fibonacci level at the 50% level. So if this resistance level can be crossed then it will be the support level and the right price area to open BUY USD / CHF position.
If you set the position in the Fibonacci level area of 50% then you will get a satisfying advantage.
When you will apply this method there will be a very stressful moment on April 1 that the price tries to penetrate the support level (50%) but ultimately fails and rallies to the point where the swing high continues its uptrend.
You can also do this to the downtrend position. And the point of this is that you must be able to find an attractive price area in the past. And if you think about it, the opportunity to bounce off the area is very large. Because of what?
First, as we have discussed before that support and resistance levels are a very good price area to open BUY / SELL positions because many traders see this area like an eagle.
Second, because we know that many traders who use the Fibonacci retracement method show that there will be many traders who open positions at each price level.
With so many traders looking at the support and resistance levels, there can be a lot of orders at that level. Although there is no guarantee that the price will bounce as expected but at least you have the confidence to open a position in the market.
And the last thing to remember is that what we do is nothing but increase WIN OPPORTUNITIESby following the direction of the market that is moving and there is no definite thing in the market for that to do always risk management in trading.