But we ain’t done yet!
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 an earlier lesson.
Exhausted Candlestick Patterns
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 the price may continue trending.
These are called “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.
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.
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!
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 to the earlier lessons, you’d know that this is an “exhaustive candle.”