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Trade Trends with Fibonacci

Trade Trends with Fibonacci

Walker England, Forex Trading Instructor


Article Summary: The GBPCAD has been one of the markets strongest trends for 2013. As the trend extends, traders will look to identify new price levels for market entries.

Drawing trendlines can be a great way to determine market direction. However, trendlines by themselves leave a lot to be desired when it comes to finding entry points in an extended market. Below we can see a great example on the GBPCAD that is currently in a downtrend, but where can a trader look to place new orders? Let’s take a look at how retracement traders can plan trades on a move back to the determined trendline.

Learn Forex – GBPUSD 8Hour Trend

(Created using FXCM’s Marketscope 2.0 charts)

Trendline & Fibonacci

One technique used to identify entries with the trend, is through the implementation of Fibonacci retracements with a trendline. Fibonacci retracements can be used on a variety of charts and timeframes, but its primary purpose is to reveal potential support and resistance levels. In a downtrend, retracement traders will use these points as areas of resistance marking potential trade entries when they converge with a trendline.

Below we can see our GBPCAD daily trend, but this time a 61.8% retracement level has been included in the analysis. The currently displayed retracement value will shows us when the market has moved 61.8% against the primary downtrend, by measuring the distance between the previous high and low. This confluence of resistance in a downtrend is an excellent trading point to consider entering into new positions with the trend. Once an entry point is determined, traders can then look to manage their positions risk.

Learn Forex – GBPCAD with Fibonacci

(Created using FXCM’s Marketscope 2.0 charts)

When trading support and resistance it is always important to have a clear profit target and a stop to limit risk. In a downtrend stops should always be placed above our current resistance levels. In case price breaks out to new highs, traders will want to close any existing short positions. In trending markets, take profit points should target new highs or lows. By using these concepts, traders are then free to employ a Risk/Reward level of their choosing.

---Written by Walker England, Trading Instructor

To contact Walker, email Follow me on Twitter at @WEnglandFX.

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Are you looking for other ways to interpret support and resistance levels? Take our free course on trading Fibonacci Retracements !

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.