Trend line analysis is another useful technique to use in conjunction with the Fibonacci retracement tool.
After all, Fibonacci retracement levels are most effective when the market is moving, so this makes sense.
Remember that traders utilize Fibonacci retracement levels to get in on the trend when a pair is in a downtrend or rally.
A one-hour chart of the AUD/JPY is shown below. Over the last few days, the price has been following a short-term ascending trend line, as you can see.
“Hmm, that’s a nice uptrend right there,” you think to yourself. Even if it’s just for short-term trading, I’d like to buy AUD/JPY. I believe I will buy whenever the pair re-establishes the trend line.”
But first, why don’t you dig into your forex toolkit and pull out that Fibonacci retracement tool? Let’s see if we can get a more precise fee for entrance.
Using the Swing Low at 82.61 and the Swing High at 83.84, we plotted the Fibonacci retracement levels.
Take note of how the ascending trend line intersects the 50.0 percent and 61.8 percent Fib levels.
Could these levels be used as a source of support? It’s only a matter of time before you find out!
What’s more, guess what? Price bounced off the 61.8 percent Fibonacci retracement line before moving back up. You would have had a wonderful entry if you had set some orders at that level!
Price rocketed higher a few hours after touching the trend line, like Astro Boy blasting through the Swing High.
Isn’t it great that you now have this in your trading toolbox?
As you can see, even if you aim to enter on a retest of the trend line, using the Fibonacci retracement tool pays off.
The presence of both a diagonal and a horizontal support or resistance level may indicate that other traders are also interested in those levels.
Take aware, however, that, like other sketching tools, trend lines can be highly subjective.
You have no idea how other traders are drawing them, but you can be sure of one thing: there is a pattern!
If you notice an uptrend building, you should look for strategies to go long to increase your chances of making a profit.
The Fibonacci retracement tool can assist you in locating probable entry points.
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