Combining Fibonacci Levels with Key Support and Resistance
The Fibonacci retracement tool can be perfectly combined with a great number of technical analysis tools including key support and resistance levels. If the Fibonacci retracement levels align with major Support and Resistance there is a high probability that a strong price movement will occur. This movement may be a strong breakout or a significant trend reversal.
As it is mentioned many times in TradingFibonacci.com, the Fibonacci levels provide Possible Reversal Zones (PRZ) and not accurate price reversal levels. Hence, the existence of strong historical Support and Resistance levels can be very useful in confirming breakouts or reversals.
The key support and resistance levels are price levels that have been zones of strong trading interest in the past. History tends to repeat itself and therefore there is a high chance that new buyers/sellers will be activated at these levels.
A great number of traders will probably monitor these levels with caution and as many traders are looking at the same support and resistance levels, there’s a high probability that thousands of orders will be activated simultaneously. In other words, trade volume will boom and probably price volatility will boom too. There can be no certainty regarding the occurrence of any price reversal/breakout but trading is a game of probabilities and if you trade on the right side there is a good chance of making good money in the long run.
Combining with Pivots or Trendlines
Alternatively, to Support and Resistance levels, there are other tools with historical significance that can confirm the Fibonacci Levels, such as Daily, Weekly, and Monthly Pivots, or important Trendlines.
The Appearance of a Candlestick Reversal / Continuation Pattern
Ideally, if the price reverses near a strong Support and Resistance Level which is also close to a Fibonacci Level, you should identify the appearance of a candlestick reversal pattern.
Find more about candlestick reversal patterns here:
Advantages When Combining Fibonacci Levels with Support and Resistance Levels
Here are some advantages:
You can combine these two methods when trading any financial asset in any timeframe
Fibonacci levels are very reliable during strong market trends while Support and Resistance levels are very powerful in ranging markets
You can combine these two tools in any market conditions (bullish, neutral, bearish)
Example when Trading with Support and Resistance Levels
Let’s look at an example of trading using support and resistance levels.
In the following example, you can see EURUSD ranging between 1.050 and 1.165. At 1.165 there is strong resistance and at 1.050 there is strong support. Note that these levels are also the Fibonacci levels 0% and 100%.
When the market reaches 1.17 and reverses downwards, there is the perfect opportunity to go short.
When the market reaches 1.05 and reverses upwards, there is the perfect opportunity to go long.
■ Combining Fibonacci Levels with Support and Resistance Levels