Non Farm Payrolls (NFP) measures the amount of jobs gained in the U.S. during the previous month that aren’t farm related. It is typically released on the first Friday of the new month, and also includes the Unemployment Rate, Average Hourly Earnings, and the Participation Rate. While all of those releases can have an impact, NFP is the main driver of market movement and is often times the single most-watched economic event that is released on a monthly basis.

Unlike men, not all economic news events are created equal. Some events create a lot of hysteria and knee-jerk reactions, whereas others barely cause a blip on the radar. The ubiquitous Non-Farm Payroll (NFP) report out of the U.S. is an example of the former.

So much attention is paid to the NFP report that pundits from across the financial blogosphere attempt to predict its eventuality and impact across a variety of financial instruments.

The large reaction is due in part to the Dual Mandate of the Federal Open Market Committee of maximum employment and stable prices. The “maximum employment” part of that mandate means that the Fed looks at NFP to help determine what interest rates will be in the future which has an outsized impact on the health of the economy. If job growth is strong, the Fed would typically look to raise interest rates assuming inflation is in check, and vice versa if job growth is weak. However, simply determining if NFP is weak or strong is another matter altogether due to expectations.

Consensus
The consensus expectation for NFP plays a large role in how the markets react to the data, with the median expectation of a group of professional analysts serving as the decision point. For instance, if consensus is 200k, and the number comes out at 205k, there may not be too much reaction to that figure as it ended up being almost exactly what the market anticipated. The further away from the consensus, though, the more significant the reaction.

Two Ways to Trade NFP

Before the release:
If you place a trade before the figure is revealed, you are using your skills of deductive reasoning to predict which way the market will go before it actually does. Risk management is vital to using this type of strategy as an unexpected figure can create gaps in the market that could theoretically jump right over any risk-minimizing stops you have in place. Therefore, it is wise to give whatever instrument you choose to trade wide breadth to move and oscillate to give yourself a better chance. Most of the central banks around the world would like inflation to grow at an annual basis of around 2% to 3%.

After the release:
Trading after the release is a little more cautious, but also comes with its own set of risks. The initial knee-jerk reaction to the NFP headline isn’t always the “end-all, be-all” of market movement for the day. It has been well documented that markets can mimic a V-shape post NFP, where the spike goes in one direction then reverses in the minutes or hours afterward.

Fundamental Analysis is a broad term that describes the act of trading based purely on global aspects that influence supply and demand of currencies, commodities, and equities. If you happen upon someone whom is touting chart patterns or overbought/oversold levels, you have crossed over into the technical analysis realm. Many traders will use both fundamental and technical methods to determine when and where to place trades, but they also tend to favor one over the other. However, if you would like to use only fundamental analysis, there are a variety of sources to base your opinion.

Central Banks
Central banks are likely one of the most volatile sources for fundamental trading. The list of actions they can take is vast; they can raise interest rates, lower them (even into negative territory), keep them the same, suggest their stance will change soon, introduce non-traditional policies, intervene for themselves or others, or even revalue their currency. Fundamental analysis of central banks is often a process of poring through statements and speeches by central bankers along with attempting to think like them to predict their next move.

Economic Releases
Trading economic releases can be a very tenuous and unpredictable challenge. Many of the greatest minds at the major investment banks around the world have a difficult time predicting exactly what an economic release will ultimately end up being. They have models that take many different aspects into account, but can still be embarrassingly wrong in their predictions; hence the reason that markets move so violently after important economic releases. Many investors tend to go with the “consensus” of those experts, and typically markets will move in the direction of the consensus prediction before the release. If the consensus fails to predict the final result, the market then usually moves in the direction of the actual result – meaning that if it was better than consensus, a positive reaction unfolds and vice versa for a less-than-consensus result.

The trick to trading the fundamental aspect of economic releases is to determine when you want to make your commitment. Do you trade before or after the figure is released? Both have their merits and their detractions. If you trade well before the release, you can try to take advantage of the flow toward the consensus expectation, but other fundamental events around the world can impact the market more than the consensus read. Trading moments before the economic release means that you have an opinion on whether the actual release will be better or worse than the consensus, but you could be dreadfully wrong and risk large losses on essentially a coin flip. Trading moments after the economic release means that you will be trying to establish a position in a low-volume market which presents the challenge of getting your desired price.

Geopolitical Tensions
Like it or not, some countries around the world don’t get along very nicely with each other or the global community and conflicts or wars are sometimes imminent. These tensions or conflicts can have an adverse impact on tradable goods by changing the supply or even the demand for certain products. For instance, increased conflict in the Middle East can put a strain on the supply of oil which then makes the price increase. Conversely, a relative calm in that part of the world can decrease the price of oil as supply isn’t threatened. Being able to properly predict how these events will conclude may be a way to get ahead of the market with your fundamental perspective.

Seasonality
The seasonality as related to weather is something that makes sense as the natural gas example pointed out above, but there are other seasonal factors that aren’t related to weather as well. For instance, at the end of the calendar year many investors will sell equities that have declined throughout the year in order to claim capital losses on their taxes. Sometimes it may be beneficial to exit positions before the year-end selloff begins. On the other side of that equation, investors typically come back to equities in droves in January, a phenomenon called “The January Effect.” The end of a month can be rather active as well as businesses that sell products in multiple nations look to offset their currency hedges, a practice termed “Month-End Rebalancing.”

Economic indicators, or economic releases, are vital components to consider when making trading decisions. While some releases like Employment data or Retail Sales gives us a snapshot of an economy’s strength or weakness, some are a bit more subtle in their ways and can actually serve as a leading supposition of what’s to come for the main releases. In the spirit of trying to predict how the more important indicators will fare, here are some leading economic indicators that could give you a clue of how they will turn out.

Consumer and Business Surveys
When looking at economic releases, we have to realize that everything is ultimately related to the habits and actions of consumers: Retail Sales is a direct measure of how much consumers purchase; Gross Domestic Product is a direct measure of the capital spent by businesses and consumers; Employment is directly driven by demand to make product that is purchased by consumers; the list goes on. Taking that knowledge in effect means that it is incredibly helpful to have a measure of the optimism or pessimism of consumers, and surveys deliver that to us. It is imperative to be cautious when trying to assess the impact of the surveys because they have a different time reference than the more vital reports.

Survey results are usually reported about a week or two after the surveys are conducted whereas a report like Retail Sales can be reported anywhere from two to six weeks after the month end. Therefore matching the timeframes for the various reports is an absolute necessity.

Purchasing Manager Indices
There are a variety of PMI reports that get released by a few institutions (ISM and Markit chief among them), and all have varying degrees of importance; however, among them all, the “flash,” or “preliminary,” releases are the most telling. The reasoning behind that importance is directly related to their timing. The flash reports are typically released mid-month or slightly after to measure how the month has been going so far according to purchasing and supply executives. The higher above 50 those readings are, the better the month is shaping up for them as they are showing growth. Conversely, if the figure is below 50, then that represents a majority of negative responses and could signal a pullback in that nation’s economy.

Vehicle Sales
Government is slow to release their official figures due to their desire to be accurate and probably a few bureaucratic reasons, but businesses tend to be a little more expedient. For that reason, Vehicle Sales for the previous month are reported almost as soon as the month ends while the government figures are released much later. The theory is that if vehicle sales are strong then, most likely, other forms of consumerism will also be strong.

These are just a couple of the leading economic indicators you can use to help yourself get a leg up on the competition, and the more you watch them, the more comfortable you can become in utilizing their knowledge.

Economic announcements, or new events, are a widely followed aspect of trading due to their influence on monetary as well as political policy. Therefore, it is important to know which announcements are going to create the most impact and volatility to take advantage of their movements. Here are some of the most widely revered events and their meaning.

Employment
Whether we’re talking about Non-Farm Payrolls (NFP) in the US or Employment Change in Australia, economic announcements about jobs are an incredibly important measure of the growth or contraction of a particular region. Many of the central banks around the world have “healthy employment” or some derivative of that as one of their mandates. So if employment isn’t performing up to the level they would prefer, they could adjust their monetary policy to boost it, therefore influencing a variety of other factors as well.

Consumer Price Inflation (CPI)
Almost always lumped in with employment on the mandates of central banks around the world is “price stability.” While there are plenty of measures for inflation including Producer Price Index (PPI), Import/Export Prices, Food Price Index (FPI), Retail Price Index (RPI), Wholesale Price Index (WPI), among others, the CPI is usually the most respected due to its proximity to the consumer. Most developed economies prefer their CPI to be around 1%-3%.

Central Bank Meetings
We watch other economic announcements so diligently to try and predict what the central banks will be doing with their future monetary policy. Therefore it only makes sense that we pay close attention to what they actually do when they make their decisions as well. Interest rate hikes or cuts, forward guidance on future policy, or even introduction of unconventional measures are things we have come to expect from these meetings and their effects are both immediate and long-lasting.

Consumer and Business Sentiment
The multitude of consumer and business sentiment reports that are released across the globe every month is staggering; however, they all play their part in shaping the market’s expectations for the future. Anecdotally, businesses are usually ahead of consumers in feeling apprehensive or optimistic for the future, and if both sentiment indicators are heading in the same direction, that is typically a stronger signal.

Retail Sales
One of the main drivers of developed economies is their propensity to consume. Retail Sales measures that consumption proclivity better than most other indicators and is widely followed because of it.

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You can’t just enter a trade based on Fib levels without having a clue where to exit.

Your account will just go up in flames and you will forever blame Fibonacci, cursing his name in Italian.

In this lesson, you’ll learn a couple of techniques to set your stops when you decide to use them trusty Fib levels.

These are simple ways to set your stop and the rationale behind each method.

Method #1: Place Stop Just Past Next Fib

The first method is to set your stop just past the next Fibonacci level.

If you were planning to enter at the 38.2% Fib level, then you would place your stop beyond the 50.0% level.

If you felt like the 50.0% level would hold, then you’d put your stop past the 61.8% level and so on and so forth. Simple, right?

Let’s take another look at that 4-hour EUR/USD chart we showed you back in the Fibonacci retracement lesson.

Aggressive way: Place stop just past the next Fibonacci retracement level

If you had shorted at the 50.0%, you could have placed your stop loss order just past the 61.8% Fib level.

The reasoning behind this method of setting stops is that you believed that the 50.0% level would hold as a resistance point. Therefore, if the price were to rise beyond this point, your trade idea would be invalidated.

The problem with this method of setting stops is that it is entirely dependent on you having a perfect entry.

Setting a stop just past the next Fibonacci retracement level assumes that you are really confident that the support or resistance area will hold. And, as we pointed out earlier, using drawing tools isn’t an exact science.

The market might shoot up, hit your stop, and eventually go in your direction. This is usually when we’d go to a corner, and start hitting our head on the wall.

We’re just warning you that this might happen, sometimes a few times in a row, so make sure you limit your losses quickly and let your winners run with the trend.

It might be best if you used this type of stop placement method for short-term, intraday trades.

Method #2: Place Stop Past Recent Swing High/Low

Now, if you want to be a little safer, another way to set your stops would be to place them past the recent Swing High or Swing Low.

For example, when the price is an uptrend and you’re in a long position, you can place a stop loss just below the latest Swing Low which acts as a  potential support level.

When the price is in a downtrend and you’re in a short position, you can place a stop loss just above the Swing High which acts as a potential resistance level.

This type of stop loss placement would give your trade more room to breathe and give you a better chance for the market to move in favor of your trade.

Conservative way: Place stop past the Swing High/Low

If the market price were to surpass the Swing High or Swing Low, it may indicate that a reversal of the trend is already in place.

This means that your trade idea or setup is already invalidated and that you’re too late to jump in.

Setting larger stop losses would probably be best used for longer-term, swing-type trades, and you can also incorporate this into a “scaling in” method, which you will learn later on in this course.

Of course, with a larger stop, you also have to remember to adjust your position size accordingly.

If you tend to trade the same position size, you may incur large losses, especially if you enter at one of the earlier Fib levels.

This can also lead to some unfavorable reward-to-risk ratios, as you may have a wide stop that isn’t proportional to your potential reward.

So which way is better?

The truth is, just like in combining the Fibonacci retracement tool with support and resistance, trend lines, and candlesticks to find a better entry, it would be best to use your knowledge of these tools to analyze the current environment to help you pick a good stop loss point.

As much as possible, you shouldn’t rely solely on Fibonacci levels as support and resistance points as the basis for stop loss placement.

Remember, stop loss placement isn’t a sure thing.

But if you can tilt the odds in your favor by combining multiple tools, it could help give you a better exit point, more room for your trade to breathe, and possibly a better reward-to-risk ratio trade.

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The next use of Fibonacci will be using them to find “take profit” targets.

Gotta always keep in mind “Zombieland Rules of Survival #22”:

When in doubt, know your way out!

Let’s start with an example of an uptrend.

In an uptrend, the general idea is to take profits on a long trade at a Fibonacci Price Extension Level.

You determine the Fibonacci extension levels by using three mouse clicks.

First, click on a significant Swing Low, then drag your cursor and click on the most recent Swing High. Finally, drag your cursor back down and click on any of the retracement levels.

This will display each of the Price Extension Levels showing both the ratio and corresponding price levels. Pretty neat, huh?

 

Let’s go back to that example with the USD/CHF chart we showed you in the previous lesson.

 

Former resistance turned support at 1.0510 held nicely

The 50.0% Fib level held strongly as support and, after three tests, the pair finally resumed its uptrend. In the chart above, you can even see the price rise above the previous Swing High.

Let’s pop on the Fibonacci extension tool to see where would have been a good place to take off some profits.

Fib extensions help us spot potential take profit points

Here’s a recap of what happened after the retracement Swing Low occurred:

  • Price rallied all the way to the 61.8% level, which lined up closely with the previous Swing High.
  • It fell back to the 38.2% level, where it found support
  • Price then rallied and found resistance at the 100% level.
  • A couple of days later, the price rallied yet again before finding resistance at the 161.8% level.

As you can see from the example, the 61.8%, 100%, and 161.8% levels all would have been good places to take off some profits.

Now, let’s take a look at an example of using Fibonacci extension levels in a downtrend.

 

In a downtrend, the general idea is to take profits on a short trade at a Fibonacci extension level since the market often finds support at these levels.

Let’s take another look at that downtrend on the 1-hour EUR/USD chart we showed you in the Fib Sticks lesson.

Buyers could not break through the 61.8% Fib. Sellers jumped back in and brought price back down to test former lows

Here, we saw a doji form just under the 61.8% Fib level. Price then reversed as sellers jumped back in, and brought price all the way back down to the Swing Low.

Let’s put up that Fib Extension tool to see where would have been some good places to take profits had we shorted at the 61.8% retracement level.

The 38.2%, 50.0%, and 61.8% extension levels would have all been good places to take profit

Here’s what happened after the price reversed from the Fibonacci retracement level:

  • Price found support at the 38.2% level
  • The 50.0% level held as initial support, then became an area of interest
  • The 61.8% level also became an area of interest, before price shot down to test the previous Swing Low
  • If you look ahead, you’ll find out that the 100% extension level also acted as support

We could have taken off profits at the 38.2%, 50.0%, or 61.8% levels. All these levels acted as support, possibly because other traders were keeping an eye out for these levels for profit-taking as well.

The examples illustrate that price finds at least some temporary support or resistance at the Fibonacci extension levels – not always, but often enough to correctly adjust your position to take profits and manage your risk.

Of course, there are some problems to deal with here.

First, there is no way to know which exact Fibonacci extension level will provide resistance.

ANY of these levels may or may not act as support or resistance.

Another problem is determining which Swing Low to start from in creating the Fibonacci extension levels.

One way is from the last Swing Low as we did in the examples; another is from the lowest Swing Low of the past 30 bars.

Again, the point is that there is no one right way to do it, but with a lot of practice, you’ll make better decisions of picking Swing points.

For now, let’s move on to stop loss placement!

In this lesson, we’re going to teach you how to combine the Fibonacci retracement tool with your knowledge of Japanese candlestick patterns that you learned in Grade 2.

 

When combining the Fibonacci retracement tool with candlestick patterns, we are actually looking for exhaustive candlesticks.

If you can tell when buying or selling pressure is exhausted, it can give you a clue of when price may continue trending.

 

We here at BabyPips.com like to call them “Fibonacci Candlesticks,” or “Fib Sticks” for short. Pretty catchy, eh? Let’s take a look at an example to make this clearer.

 

Below is a 1-hour chart of EUR/USD.

1-hour chart of EUR/USD with Fibonacci retracement levels

The pair seems to have been in a downtrend the past week, but the move seems to have paused for a bit.

Will there be a chance to get in on this downtrend? You know what this means. It’s time to take the Fibonacci retracement tool and get to work!

As you can see from the chart, we’ve set our Swing High at 1.3364 on March 3, with the Swing Low at 1.2523 on March 6.

Since it’s a Friday, you decided to just chill out, take an early day off, and decide when you wanna enter once you see the charts after the weekend.

Bullish green candle. Is EUR/USD headed for new highs?

Whoa! By the time you popped open your charts, you see that EUR/USD has shot up quite a bit from its Friday closing price.

While the 50.0% Fib level held for a bit, buyers eventually took the pair higher. You decide to wait and see whether the 61.8% Fib level holds.

After all, the last candle was pretty bullish! Who knows, the price just might keep shooting up!

Doji forms on the 61.8% Fib. Potential reversal

Well, will you look at that? A long-legged doji has formed right smack on the 61.8% Fibonacci retracement level.

If you paid attention in Grade 2, you’d know that this is an “exhaustive candle.”

 

Has buying pressure died down? Is resistance at the Fibonacci retracement level holding?

It’s possible. Other traders were probably eyeing that Fib level as well.

Is it time to short? You can never know for sure (which is why risk management is so important), but the probability of a reversal looks pretty darn good!

Buyers ran out of steam. Resistance at 61.8% Fibonacci retracement held

If you had shorted right after that doji had formed, you could have made some serious profits.

Right after the doji, the price stalled for a bit before heading straight down. Take a look at all those red candles!

It seems that buyers were indeed pretty tired, which allowed sellers to jump back in and take control.

Eventually, the price went all the way back down to the Swing Low. That was a move of about 500 pips! That could’ve been your trade of the year!

 

Looking for “Fib Sticks” can be really useful, as they can signal whether a Fibonacci retracement level will hold.

If it seems that price is stalling on a Fib level, chances are that other traders may have put some orders at those levels.

This would act as more confirmation that there is indeed some resistance or support at that price.

Another nice thing about Fib Sticks is that you don’t need to place limit orders at the Fib levels.

You may have some concerns about whether the support or resistance will hold since we are looking at a “zone” and not necessarily specific levels.

This is where you can use your knowledge of candlestick formations.

You could wait for a Fib Stick to form right below or above a Fibonacci retracement level to give you more confirmation on whether you should put in an order.

If a Fib stick does form, you can just enter a trade at the market price since you now have more confirmation that level could be holding.

Remember that whenever a pair is in a downtrend or uptrend, traders use Fibonacci retracement levels as a way to get in on the trend.

 

So why not look for levels where Fib levels line up right smack with the trend?

Here’s a 1-hour chart of AUD/JPY. As you can see, the price has been respecting a short-term ascending trend line over the past couple of days.

Rising trend line on 1-hour chart of AUD/JPY

You think to yourself, “Hmm, that’s a sweet uptrend right there. I wanna buy AUD/JPY, even if it’s just for a short-term trade. I think I’ll buy once the pair hits the trend line again.”

 

Before you do that though, why don’t you reach for your forex toolbox and get that Fibonacci retracement tool out? Let’s see if we can get a more exact entry price.

 

Fibonacci retracement levels intersecting with rising trend line. Potential support?

Here we plotted the Fibonacci retracement levels by using the Swing low at 82.61 and the Swing High at 83.84.

Notice how the 50.0% and 61.8% Fib levels are intersected by the rising trend line.

Could these levels serve as potential support levels? There’s only one way to find out!

Trend line and support at 61.8% Fibonacci retracement level hold

Guess what? The 61.8% Fibonacci retracement level held, as price bounced there before heading back up. If you had set some orders at that level, you would have had a perfect entry!

A couple of hours after touching the trend line, price zoomed up like Astro Boy bursting through the Swing High.

Aren’t you glad you’ve got this in your trading toolbox now?

As you can see, it does pay to make use of the Fibonacci retracement tool, even if you’re planning to enter on a retest of the trend line.

The combination of both a diagonal and a horizontal support or resistance level could mean that other traders are eying those levels as well.

 

Take note though, as, with other drawing tools, drawing trend lines can also get pretty subjective.

You don’t know exactly how other traders are drawing them, but you can count on one thing – that there’s a trend!

If you see that an uptrend is developing, you should be looking for ways to go long to give you a better chance of a profitable trade.

You can use the Fibonacci retracement tool to help you find potential entry points

الگو ی انبرک

Well, seeing as how Fibonacci levels are used to find support and resistance levels, this also applies to Fibonacci!

Fibonacci retracements do NOT always work! They are not foolproof.

Let’s go through an example when the Fibonacci retracement tool fails.

Below is a 4-hour chart of GBP/USD.

Here, you see that the pair has been in a downtrend, so you decided to take out your Fibonacci retracement tool to help you spot a good entry point. You use the Swing High at 1.5383, with a swing low at 1.4799.

You see that the pair has been stalling at the 50.0% level for the past couple of candles.

You say to yourself, “Oh man, that 50.0% Fib level! It’s holding baby! Time to short this sucka!”

 

You short at market and start daydreaming that you’ll be driving down Rodeo Drive in your new Maserati with Scarlett Johansson (or if you’re a lady trader, Ryan Gosling) in the passenger seat…

 

Resistance at the 50.0% Fibonacci retracement seems to be holding

Now, if you really did put an order at that level, not only would your dreams go up in smoke, but your account would take a serious hit if you didn’t manage your risk properly!

Take a look at what happened.

Fibonacci retracement levels failed to hold and price broke through for new highs

It turns out that that Swing Low was the bottom of the downtrend and the price began to rally above the Swing High point.

What’s the lesson here?

While Fibonacci retracement levels give you a higher probability of success, like other technical tools, they don’t always work. You don’t know if the price will reverse to the 38.2% level before resuming the trend.

Sometimes it may hit 50.0% or the 61.8% levels before turning around. Heck, sometimes the price will just ignore Mr. Fibonacci and blow past all the levels just like how Lebron James bullies his way through the lane with sheer force.

Remember, the market will not always resume its uptrend after finding temporary support or resistance, but instead continue to go past the recent Swing High or Low.

 

Another common problem in using the Fibonacci retracement tool is determining which Swing Low and Swing High to use.

People look at charts differently, look at different time frames, and have their own fundamental biases. It is likely that Stephen from Pipbuktu and the girl from Pipanema have different ideas of where the Swing High and Swing Low points should be.

The bottom line is that there is no absolute right way to do it, especially when the trend on the chart isn’t so clear. Sometimes it becomes a guessing game.

That’s why you need to hone your skills and combine the Fibonacci retracement tool with other tools in your forex toolbox to help give you a higher probability of success.

 

It’s kinda like comparing it to NBA legend Kobe Bryant.

 

Kobe was one of the greatest basketball players of all time, but even he couldn’t win those titles by himself.

He needed some backup.

 

Similarly, the Fibonacci retracement tool should be used in combination with other tools.

In this lesson, let’s take what you’ve learned so far and try to combine them to help us spot some sweet trade setups.

Are y’all ready? Let’s get this pip show on the road!

Fibonacci Retracement + Support and Resistance

One of the best ways to use the Fibonacci retracement tool is to spot potential support and resistance levels and see if they line up with Fibonacci retracement levels.

 

If Fibonacci levels are already support and resistance levels, and you combine them with other price areas that a lot of other traders are watching, then the chances of price bouncing from those areas are much higher.

 

Let’s look at an example of how you can combine support and resistance levels with Fibonacci levels. Below is a daily chart of USD/CHF.

Daily chart of USD/CHF with Fibonacci retracement levels

As you can see, it’s been on an uptrend recently. Look at all those green candles!

You decide that you want to get in on this long USD/CHF bandwagon.

But the question is, “When do you enter?”

You bust out the Fibonacci retracement tool, using the low at 1.0132 on January 11 for the Swing Low and the high at 1.0899 on February 19 for the Swing High.

Now your chart looks pretty sweet with all those Fibonacci retracement levels.

Resistance turned support at 50.0% Fib?

Now that we have a framework to increase our probability of finding a solid entry, we can answer the question “Where should you enter?”

You look back a little bit and you see that the 1.0510 price was good resistance level in the past and it just happens to line up with the 50.0% Fibonacci retracement level.

Now that it’s broken, it could turn into support and be a good place to buy.

Resistance turned support at 50.0% Fib holds and price eventually makes a new high

If you did set an order somewhere around the 50.0% Fib level, you’d be a pretty happy camper!

There would have been some pretty tense moments, especially on the second test of the support level on April 1.

Price tried to pierce through the support level but failed to close below it. Eventually, the pair broke past the Swing High and resumed its uptrend.

 

You can do the same setup on a downtrend as well. The point is you should look for price levels that seem to have been areas of interest in the past.

 

If you think about it, there’s a higher chance that the price will bounce from these levels.

Why?

First, as we discussed in Grade 1, previous support or resistance levels are usually good areas to buy or sell because other traders will also be eyeing these levels like a hawk.

Second, since we know that a lot of traders also use the Fibonacci retracement tool, they may be looking to jump in on these Fib levels themselves.

With traders looking at the same support and resistance levels, there’s a good chance that there are a ton of orders at those price levels.

While there’s no guarantee that the price will bounce from those levels, at least you can be more confident about your trade. After all, there is strength in numbers!

Remember that trading is all about probabilities.

If you stick to those higher-probability trades, then there’s a better chance of coming out ahead in the long run.