How to Use Fibonacci Retracement with Trend Lines

The main aim of the Fibonacci retracement levels and the use of Fibonacci trading, in general, is to signal the most reliable support and resistance levels. In trading, the Fibonacci sequence levels are commonly used by many traders in financial markets, and the most important of all is the Golden Ratio. 

But what if I told you that you can confirm the signal by drawing a trend line and using it as a confirming technical analysis tool. And if the trend line and the Fibonacci levels collide, this point may become the most forceful support or resistance level.

As we learned in the previous lessons, a trend line helps you to identify the trend direction. Fibonacci retracements, on the other hand, are simply horizontal lines used by many traders to identify high and low points in a specified time frame. When these two technical analysis tools are combined, you can find key levels and entry points in forex trading.

Technically, the first thing you need to know is how to draw key Fibonacci ratios and a trend line on charting software. But these technical indicators are available on almost every trading platform so you should find your way around easily. If needed, you can go back to the trend lines lesson, and learn how to draw trend lines when analyzing the forex market.

The next and most important thing you need to know is to identify trends and combine Fibonacci retracement with trend lines on a forex price chart. But, that is a skill that comes with practice so the more you trade using Fibonacci retracements and a trend line, the better forex trader you can become.

Once you have your trend line in place, you will pull up your useful Fibonacci retracement tool to see the support and resistance levels that are relevant to the pair that you are examining. The Fibonacci levels are based on a complex mathematical formula used to try to predict where there are levels of support or resistance in a currency pair. Fortunately, you don’t have to know all of the math yourself, you just need to use the tool to get the figures you are looking for.

Plot the Fibonacci retracement over the currency pair and take a look at the various levels contained within it. Is the pair currently trading between Fibonacci levels, or is it right on the support or resistance line right now?

This is vital to your next decisions regarding either buying or selling the pair and setting your take-profit/stop-loss levels. You will want to combine the Fibonacci levels with the trend line and any other indicators that you might want to use in order to get a more complete picture of where to place your trade, and where to bail out of it when the time comes.

When an intersection of Fibonacci retracement with trend lines occurs, there may be a strong support or resistance zone there — as in the below chart.

Keep in mind that the Fibonacci lines that you draw are just one indicator among many, and they are only meant to be used to help you get a better idea of where some of the exit or entry points for a trade may be. You shouldn’t lean too heavily on any one indicator above all of the rest. There are plenty of indicators that you can use in combination with one another to get the most accurate picture of where a given trade is headed, and that is what you should do as a disciplined trader.

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