Fibonacci Retracements and Candlestick Analysis

Fibonacci retracements and extensions are known to be fairly reliable indicators when used on their own. Often they can accurately predict the support and resistance lines throughout the trend of a security and this can help determine price targets which, if used correctly, can help a trader make a large profit. However, as is the case with any indicator the best results are usually accrued when a combination of indicators are used to provide more substantial evidence. Fibonacci retracements and extensions can be used in conjunction with well-known candlestick patterns and if employed successfully the two indicators can predict price reversals that are likely to occur if a security hits a line of resistance or support.

Commonly, traders will always use a combination of indicators to help them make decisions on when to enter and exit the market. Relying on any one particular indicator can be limiting and often it does not provide substantial enough evidence to make crucial decisions. By combining indicators with a Fibonacci retracement or extension a trader can be much more certain when making a foray into the market because they will be provided with evidence from two separate sources. Using Fibonacci retirements and extensions in conjunction with other indicators increases a trader’s chances of success significantly because if two or more indicators are suggesting the same move in the market it is likely to happen. Conversely if one indicator is suggesting the market will move up whilst another indicator is suggesting the market price will move down, this demonstrates to a trader that entering the market at this point may not be a wise idea because there is a significant degree of uncertainty present.

Fibonacci retracements and extensions can be used in conjunction with candlestick patterns to help provide more compelling evidence when a trader is considering entering and exiting a market. Candlestick patterns are arguably the most basic form of indicator available to a trader but this does not make them irrelevant or a waste of time. When used correctly, certain candlestick patterns are known to be incredibly reliable and can accurately predict price reversals or trend continuations. One particular candlestick pattern that is well known for its consistency and reliability is the doji star. This occurs when the price of a security opens and closes at the same point over a specific period. As the name suggests, the candlestick resembles a cross shaped star as opposed to a candlestick and when this is witnessed a trader can be confident that a price reversal is likely to occur.

The doji star candlestick pattern can be used together with a Fibonacci retracement and extension to predict price reversals at significant points of support or resistance. For example if a point of resistance has been highlighted by a Fibonacci retracement a trader should look for a doji star as the price nears the resistance. This will confirm if the price is likely to rebound or if it is likely to break through the resistance and carry on. If it seems the price will rebound a trader should place a sell.

Combining Fibonacci analysis with high probability candlestick patterns is a great way to increase the accuracy of both of these valuable toolsd.

Source by Mark Deaton

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