Using Fibonacci Retracement With Trend Lines

Here is another way to use the Fibonacci retracement tool, by combining it with trend lines. Other traders are always using Fibonacci retracement levels to get in on the action whenever a pair is in either an uptrend or a downtrend, so it makes sense to enter a trade where the Fibonacci levels match up with the trend.

The following 1 hour chart is of the AUD/JPY pair, and as you can easily see, the trend is rising.

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You may well consider that it is worth getting a slice of the action when the pair hits the trend line again, and you would be right.

However, it would be even better if we could find a more exact entry point. So let’s use Fibonacci to see if he can help us.

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You can see that we have used the Swing Low of 82.61 and the Swing High of 83.84 for the Fibonacci retracement levels, and that the rising trend line intersects the 50% and 61.8% levels. Might these be potential support levels?

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As you can see, the 61.8% Fibonacci level held, and the price bounced back there before rising again. That would have been the perfect entry point. In fact, what happened was that the price took off like a rocket, as you can see by all those lovely green candles. Bet you wish you’d been there!

So you can see that there is more than one way to use Fibonacci retracement levels, even if you had already planned to enter when the trend line was re-tested. Other traders might well be looking at this combination of a horizontal and diagonal trend lines as well.

Remember though, that drawing trend lines can also be subjective, and you don’t know how other traders are drawing them.

Any time that you can spot a trend, you need to find ways to give yourself the best chance of a profit, and the Fibonacci retracement tool can most certainly help.