In today forex faq, we have a question from one of our fellow traders asking me the below question on Fibonacci indicator.
Below is the question:
Let us say that I have in front of me the 1 hour timeframe and I see the chart from the 4th of February until today, and there is a clear uptrend. Do I take the highest and lowest point during these dates to draw the fibonacci or I take the last swing?
From the question above, the trader do not know whether he should draw Fibonacci using the highest and lowest point or the most recent high and low point.
This is one problem that I believe most of you who are new to the Fibonacci indicator are facing. So I will like to take this post to shed some light for you.
Lets take a look at the picture below, you can see that the price is in a strong uptrend. However if you take a close, you can see that there are a recent swing high and low within the big up trend.
For me, I will draw Fibonacci levels for both of them. For the Fibonacci levels drawn using the most recent high and low point, it is for you to wait for your chance to enter a trade to ride the trend.
Of course, please do not enter a trade simply based on this Fibonacci level, you will need to have a confluence of several factors to tell you whether the trade is worth getting in. For all my strategies, I enter it based on confluence of several factors as this will give you the best winning probability .
The reason why I will draw for both the swing highs and lows is I am looking for any one of those levels to align with my other support and resistance levels in order to give me an entry point.
You can also plot pivot points in the same chart as well in case you can find a level where the pivot meets with the fibonacci level. These type of overlapping support and resistance levels are much stronger and there is a high chance that the price will get repelled by the level once it hits it.
I hope that I have answered your question and do feel free to give your comment below if you have anything else to ask me. As for those of you who are reading this post, please take part by giving your comment below as it will be very useful for everyone here in this community.