LEVEL: INTERMEDIATE
Following up on Basic Applications of Fibonacci Ratios in the Learning Center, we can use Fibonacci numbers with Moving Averages to find areas of interest that the market may find support or resistance at. There are many other indicators that can be used along with Fibonacci as well, and as your study of Technical Analysis increases you will find what other indicators work hand in hand with each other.
Using Fibonacci numbers for a certain stock, take PETM, we can see how this plays out. Using a Daily and 60 minute chart below, we can see Fibonacci numbers that are taken from different swing points on the chart. In the Daily chart we have the Fibonacci sequence from a low back in April to the previous high. In the 60 minute chart we have the Fibonacci sequence from a low made a few days prior to this chart snapshot. Also on this chart, we also have a fast and a slow moving average.
You can see how the fast moving average in the Daily chart corresponds with the 23.6% retracement. Also the 23.6% retracement in the 60 minute chart is very close to slow moving average. Now 23.6% isn’t one that may be used that often, but hopefully you can see how moving averages can sometimes line up with the Fibonacci numbers of a particular security.
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Below are Japanese yen futures charts. In this example the moving averages on the Daily are very far away from where the market is currently trading. So another thing you may notice is that you may have two moving average numbers that are similar or exactly the same. For example on your Daily Fibonacci retracement, you may have a 38.2 % retracement number that is very close to your 61.8% retracement number on your 60 min chart. These are numbers that you also want to keep in mind.
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One other thing to note is that your moving average lines move after each bar. So by also finding retracements that are similar, you may have an instance like yen where the moving averages began to move lower. You then may find that your retracements line up with your moving averages sometime in the future. By having these particular zones of interest and by serving screen time watching the charts you will get a better understanding of how to combine moving average indicators with retracements.
Keep in mind the more Fibonacci numbers you try to find on swings/market pivot points the more data points you will have to watch. By using the major market swings, you can cut down on the number of retracements you will gather by choosing to focus only on the important ones. However you may find that using multiple Fibonacci numbers is helpful; try and find what works best for you. Also when using moving averages, so again try and find a few different periods to see what works best for you. You may find that you have better success with a longer or shorter data period moving average.
Again after watching how these markets react at these levels, you will be able to see what holds and what doesn’t. As said in the previous article, markets uncannily bounce right off these Fibonacci numbers. Also certain markets tend to hold 38% and 61.8% retracements more commonly than others. All of these things you need to keep in mind when trading different markets. This will help when you come back, or continue to trade a market actively.