[Fibonacci Practical Notes] Episode 6: Accumulate the Basis
Last time, I wrote that Fibonacci alone doesn’t decide anything
So, what exactly do we combine Fibonacci with to make judgments? This time, we will delve into that.
The idea is simple.Fibonacci levels coincide with another basis at the same place.The more people are watching that spot, the more likely it is to be significant.
This approach has a name.ConfluenceIt is a term that spread from the famous “DiNapoli method” in Fibonacci analysis. Nowadays, it is used to refer to the general idea of combining indicators.
Overlay with moving averages
Moving averages are easy to understand. The 61.8% Fibonacci level and the 200-day moving average lie in the same price range. Imagine such a scene.
That area becomes a place people are more likely to be conscious of for two reasons. So it should be more convincing than relying on a single basis.
Also, whether the price is above or below the moving average provides a clue. If it’s above, bullish pressure; if it’s below, bearish pressure.
Overlay with RSI and MACD
It also goes well with oscillator-type indicators.
For example, suppose the price has fallen to 61.8%. At the same time, RSI moves from below 30 (oversold) tosigns of reversalThis is the crucial moment.It’s not oversold anymore; it’s starting to rebound from thereYou’re watching whether it starts to move back up. I’ve also misread this and acted too soon before. When two bases align, the chances of a rebound are higher than when only one does.
If it coincides with a MACD golden cross, it becomes even more compelling. However, MACD is a bit different. The exact way to combine it with Fibonacci isn’t as well established as RSI. It’s prudent to treat it as a reference.
Overlay with horizontal lines, support and resistance
There are times when price levels that have repeatedly rebounded in the past (horizontal lines) coincide with Fibonacci levels.
The 61.8% from a higher timeframe often lies exactly at the same level as the most recent resistance. Such scenarios are quite common. I look for overlaps not only on the long-term chart, but also on lower timeframes. It can overlap with resistance on higher timeframes as well.
Overlay with swing highs/lows in Dow Theory
Dow Theory is also a good candidate for combination.
In Dow Theory, as long as lows are being raised, the trend continues; when they are lowered, it signals a trend reversal. So, I overlay the 61.8% Fibonacci level.
When it breaks 61.8% and also breaks the most recent swing lowBoth theories point in the same direction. The reliability of a trend reversal should be higher than when only one is broken.
However, simply adding indicators without reason isn’t wise
Up to here I’ve listed several ways to combine them. Butmore indicators does not necessarily mean better.
Indicators can also give conflicting signals. RSI may indicate buy while MACD suggests sell. In such cases, it can be hard to decide.
What matters isto narrow down the indicators you actually use in advanceFor me, I don’t use MACD much to begin with. Limiting the number of indicators reduces the number of conflicts you have to deal with. Trying to check everything every time can paralyze you.
By the way, the FT S I use is optimized for Fibonacci-based trading, so you can focus on other indicators without being bogged down by trading tasks.
Details of actual screens and features are on the product page.
→Fibonacci Trade System (product page)
Next time
Next time,as the end of Part 2I plan to discuss how to view Fibonacci from a different perspective.
So far we’ve looked at the meaning of levels, how to choose the starting point, which levels to target, and how to combine them. Next, from a somewhat broader viewpoint, we’ll discuss how to look at Fibonacci as a whole.