Hello and welcome to another edition of the bulls vs the bears. Last time we learnt that the fibonacci was not full proof. And that it could do a 360 on you. This week we are going to learn how to map out support and resistance levels using Fibonacci indicator.
Like we said last time, the Fibonacci tool is quite useful. But it can’t be used in isolation. It should be used in unison with other tools to discover the sweet spotup trades that you’ve been salivating about. So we ‘ll take what we ve learnt and go hunting for those spotups.
If your Fibonacci tool happens to spot support and resistance levels, combined with other price areas, then chance of price shooting high from these areas are quite good.
Let’s take a look at an example of such a scenario using a daily price action chart of USD/CHF
As you can see the bulls have been running the show. All these green candles make it crystal crystal clear as to who is in charge. The question you should be asking yourself is “When do I make my entry?” Using the Fibonacci tool, you you see the low at 1.0132 as your Swing Low and the high at the high at 1.0899 as your Swing High. So your chart looks all set with all these Fibonacci retracement levels.
Let’s see how resistance support pans out in the next scenario on the same price action chart
As you can see we’ve laid a solid foundation to increase our chances of finding a solid entry. But the next question we need to ask is “Where do we enter?
Well as you can see 1.0510 put up great resistance. And coincidentally it just so happened to align with the 50% Fibonacci retracement level. As you can see the resistance got breached. And once it turns into support, that will be the perfect time to put in your buy entry. Now let’s look at where to place your buy entry.
If you put in your buy order around the 50% Fib level, you should be in a good place. However we see some hair raising moments when the support level takes absorbs a second bite at the cherry. Price tries to break through the support barrier but is unable to close the deal. Eventually the pair do break through the barrier and continue with their journey.
The same setup can be duplicated on a downtrend. Just look for price levels with similar action from previous price action. Come to think of it the probability of price taking a ricochet from these levels are quite high. I can hear someone saying “Why do you say that?” well support/resistance areas are very popular zones to place buy orders. As such buyers will be keeping a close watch on these zones.
While it’s not guaranteed that price will shoot for the stars from these levels, you can be confident about your chances of your trade entry returning a healthy profit. It’s all a question of probabilities. If you stick with trades with a high probability of success, you will come out smelling like a rose.
That’s a wrap for “How to Map Out Support and Resistance Levels Using Fibonacci Indicator.” Next time we’ll learn how to Combine Fibonacci Retracement with Trend Line Analysis.
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