Fibonacci Trading Strategy using Confluence Factor

dotnettutorials.net/lesson/fibonacci-trading-strategy-using-confluence-factor

Back to: Trading with Smart Money

In this article, I will discuss the Fibonacci Trading Strategy using the Confluence
Factor with Real-Time Examples. Please read our previous article discussing the
Fibonacci Trading Strategy with Real-Time Examples. The following Key pointers are
going to be covered in this article.

1. Why does Fibonacci Work?

2. Fibonacci Trendline Confluence Trading Strategy
3. Confluence of Fibonacci with Price support or resistance or supply demand
zone confluence trading strategy
4. Confluence of Fibonacci with moving average confluence trading strategy
5. Fibonacci with Multiple Confluence Trading Strategy

Fibonacci Trading Strategy using Confluence Factor

Principles of Market Trends

As you know, price action has a zig-zag form

1. Movements with the trend are called “impulses/extensions.”

2. Movements against the trend are called “correction/retracement.”

1/10
Advertisements

Fibonacci RETRACEMENT
After beginning a new trend direction, the price will retrace before continuing in the trend’s
direction. Therefore, we use the Fibonacci tool to identify the following probable support
and resistance levels. The Fibonacci retracement level predicts the maximum level at
which retracement is likely to occur. Traders have a good opportunity to start new trades
in the trend’s direction at these retracement levels.

Fibonacci EXTENSION
Traders can use Fibonacci extensions to set profit targets or predict how far a market may
rise when a retracement is complete.

2/10
Advertisements

For more about the Fibonacci trading strategy, click here

Why does Fibonacci Work?

Many traders put alerts at different Fibonacci retracement levels and look for trade
opportunities at a better price.

1. The price action trader also looks for buy-on dips in established uptrends
2. And any other indicator trader also looks for entries like a trendline. moving average
etc

All these confluence factors increase the probability of success

What is the Fibonacci retracement trading strategy?

Area of support in the uptrend and area of resistance in the uptrend. The fundamental
idea behind the Fibonacci retracement trading strategy. states that after beginning a new
trend direction, the price will retrace before continuing in the trend’s direction. Therefore,
we use the Fibonacci tool to identify probable support and resistance levels. The
retracement level predicts the maximum level at which retracement is likely to occur.
Traders have an excellent opportunity to start new trades in the trend’s direction at these
retracement levels. The Fibonacci retracement levels are 23.6%, 38.2%, 50%,61.8%,
78.6%, and 100%.

Next possible support levels are marked if the stock moves up

3/10
Basic Fibonacci Trading Strategy

Advertisements

Fibonacci Trading Strategy with Confluence

What is the Area of Confluence?
Confluence means finding multiple reasons for taking a trade. “Area of Confluence” in
trading refers to a certain price zone or level when several technical analysis tools and
indicators converge and suggest the same possible price movement. Confluence zones
are considered stronger levels of support or resistance since the interaction of several
parameters adds more support to prospective price action. Many traders take entry at a
zone with the same view, creating momentum in your favor.

The Fibonacci with confluence factor trading strategy involves combining the use of
Fibonacci retracement levels with various other parameters to identify potential trade
opportunities.

Finding Area of Confluence in Fibonacci Trading Strategy

Here are some confluence factors that can be used along with the Fibonacci retracement
trading strategy

1. Fibonacci retracement
2. Horizontal support and resistance
3. Supply and demand zone
4. Trendline
5. Moving average
6. Chart pattern

More the confluence, the stronger the signal

4/10
Basic things that look in trading Fibonacci confluence trading strategy
1. Trend trading
2. Clear impulse move
3. The first pullback in a newly established trend

Fibonacci Trendline Confluence Trading Strategy

The Fibonacci with trendline trading strategy involves combining the use of Fibonacci
retracement levels with trendlines to identify potential trade opportunities in the financial
markets.

A trendline is a straight line that connects two or more price points and is used to identify
the current trend’s direction in a market. In the context of the Fibonacci with trendline
trading strategy, trendlines are used to confirm the trend’s direction and determine the
validity of the Fibonacci retracement levels.

Here is how the strategy works:

1. Identify the trend: Search for an instrument that is either rising (higher highs and
higher lows) or falling (lower highs and lower lows)
2. Draw a trendline: Draw a line on the chart that connects two or more lows (for an
uptrend) or two or more highs (for a downtrend) to indicate the trend. You can use
the trendline as a level of support or resistance to assist you in deciding whether to
buy or sell.
3. use the Fibonacci retracement tool to find out key levels of retracement and look
for the confluence of both trendlines with the Fibonacci retracement level
4. Identify entry and exit points: If the price is in an uptrend and above the trendline,
consider buying near the support of the trendline. Consider selling at the trendline
resistance if the price is below the trendline and the trend is downward.
5. Stop loss and target: – Put stop-loss orders below the trendline in an uptrend or
above the trendline in a downturn to reduce risk. Additionally, consider using profit
objectives to maximize profits at predefined levels.

5/10
Advertisements

BELOW IS AN EXAMPLE OF A BANK NIFTY DAILY TIME FRAME

FOR MORE ABOUT TRENDLINE, click here

Fibonacci with Support and Resistance or Supply and Demand Zone Confluence Trading
Strategy:

Many traders combine the confluence of Fibonacci retracement levels with support and
resistance levels or supply and demand zones to find suitable entry and exit
opportunities. This method combines Fibonacci retracement levels with significant
support and resistance levels to pinpoint places where the price may reverse.

6/10
With this approach, traders look for confluence between important support and resistance
levels, supply and demand zones, and Fibonacci retracement levels.

Here is a step-by-step guide on how to use the confluence of Fibonacci

retracement levels with support and resistance levels

1. The first step is to identify a clear trend in the market. This can be done by
looking at the price action. means there should be a clear impulse to move beyond
support resistance.
2. The second step is to identify key support and resistance levels or supply and
demand zones in a clear trend. This can be done by looking for previous price
levels where the price has breakout or reversed.
3. The third step is to use the Fibonacci retracement tool to find out the key level
of retracement and look for the confluence of both support and resistance with the
Fibonacci retracement level.
4. Identify entry and exit points: If the price is in an uptrend, consider buying near
the support of the trendline.
5. Stop loss and target: – ABOVE ENTRY SIGNAL HIGH IN DOWN TREND.

Advertisements

Here is an example of a nifty 2-hour time frame.505 Fibonacci retracement with flip
resistance and then a downtrend continued

7/10
Below is the example of Fibonacci with a supply and demand zone and then a downtrend
continued

Fibonacci with Moving Average Confluence Trading Strategy:

Using two well-known indicators, the Fibonacci plus moving average confluence trading
technique can spot probable market trends and reversals. Traders look for confluence
between these two indicators to confirm their trading decisions, and the strategy is
popular among technical analysts for its accuracy in identifying potential trading
opportunities.

Advertisements

8/10
 1. Plot moving averages on your chart. Moving averages can help identify the trend’s
direction and provide potential areas of support and resistance.
2. Use the Fibonacci retracement tool to plot the Fibonacci levels between a high and
low point in the trend.
3. look for confluence between the Fibonacci levels and the moving averages. If a key
moving average aligns with a key Fibonacci retracement level, such as the 61.8% or
50% retracement, this creates a stronger area of support or resistance.
4. if you find a confluence between the Fibonacci levels and the moving averages, the
next step is to make a trade decision. For example, if you find a confluence of
support at the 61.8% Fibonacci retracement level and a 50-moving average, you
may decide to enter a long position at that level.

BELOW IS AN EXAMPLE OF A DAILY TIME FRAME IN NIFTY. HERE THE confluence

of 61.8% Fibonacci retraces with flip support and 50 simple moving average; then, the
price continues with the trend

Fibonacci Trading Strategy with Multiple Confluence Factors

The Fibonacci, with multiple confluence methods, uses a variety of indicators to

determine possible places of support and resistance for entry and exit in the market.

finding important Fibonacci retracement levels and combining them with other confluence
factors like moving averages, trend lines, support and resistance levels, supply and
demand zones, and chart patterns. Traders can get a more complete picture of the
market and potentially find more precise trading signals

Advertisements
Let us see another example of the nifty daily time frame and the extension of the previous
chart. Here, the confluence factor falling wedge, 100 simple moving average with 61.8%
Fibonacci retrace also one can see a double bottom reversal

9/10
Here, in this article, I try to explain the Fibonacci Trading Strategy using the Confluence
Factor with Real-Time Examples. I hope you enjoy this Fibonacci Trading Strategy using
the Confluence Factor article. Please join my Telegram Channel, YouTube Channel,
and Facebook Group to learn more and clear your doubts.

Advertisements
Dot Net Tutorials
About the Author: Pranaya Rout

Pranaya Rout has published more than 3,000 articles in his 11-year
career. Pranaya Rout has very good experience with Microsoft
Technologies, Including C#, VB, ASP.NET MVC, ASP.NET Web API, EF, EF Core,
ADO.NET, LINQ, SQL Server, MYSQL, Oracle, ASP.NET Core, Cloud Computing,
Microservices, Design Patterns and still learning new technologies.

10/10