Fibonacci Tops Bottoms AKA Termination Areas Reverse Market
This section will help you define when the trend is likely to stop
Fibonacci-derived zones have the potential to signal trend reversals. Nexgen extensively emphasizes the significance of termination conditions. These conditions serve not only as profit targets for your trades but also as indicators of Fibonacci-based areas and patterns that can conclude a trend. Recognizing and incorporating these areas and patterns into your trading strategy will greatly enhance your ability to effectively navigate and profit from the subsequent direction of a new trend. It is crucial to avoid initiating new trend trades at termination areas, as doing so often results in losses. This concept holds significant importance for the development of your trading plan.
Fibonacci Areas and Assessing the Trigger Line Location
Fibonacci lines are a fundamental tool for Nexgen traders, providing a framework for their trading approach. When the price approaches a Fibonacci line, it is essential to assess the strength and positioning of your trigger lines carefully. I encourage you to view this concise video for further insights.
The continuation of a trend is likely to be interrupted when the trigger lines are not positioned "BEYOND" any Fibonacci area. It is crucial to emphasize that when the price encounters a Fibonacci area, the primary aspect to consider initially is the relative placement of the trigger lines concerning that area. Understanding and evaluating this relationship is of utmost importance.
PIVOT STOP OUTS: Anticipating Trend Reversals with Divergence Lines
The divergence line (represented by the cyan line in this example) is a pivotal tool for traders in predicting potential trend reversals. By considering the location of the small and large trigger lines about the divergence line, traders can gain insights into the likelihood of a low point terminating and initiating a trend reversal.
When the price touches a divergence line, it is referred to as a "pivot stop out," or a "divergence stop out." This signifies that the price has tested a previous high or low but failed to maintain its momentum in that direction. It is crucial to observe the positioning of the trigger lines relative to the divergence line at the time of the pivot stop-out, particularly when it occurs at a low point.
By carefully analyzing the trigger line location relative to the divergence line, traders can discern valuable information about potential trend reversals. This analysis aids in understanding the strength of the market and identifying key turning points.
Taking note of the trigger line's proximity to the divergence line during a pivot stop-out provides traders with important insights. It enables them to anticipate trend reversals and make informed trading decisions based on the observed dynamics.
By incorporating divergence line analysis, traders can enhance their ability to identify and respond to potential trend reversals, optimizing their trading strategies.
The pivot stop-out of a prior divergence high is particularly impactful when it occurs at a Fibonacci area where no trigger lines are positioned above it. Pay close attention to the trigger location corresponding to the high price.
Pivot Stop Outs on Small Chart with Weak Triggers on Large Chart.
Yellow one-to-ones
The chart below demonstrates the trend's termination at the yellow one-to-one dots. It is crucial to observe that the small triggers are not positioned below the one-to-one price. Furthermore, note that the market initiates the trigger line bottoming routine after the one-to-one level holds. Subsequently, the price reaches the mid-band after a few bars, followed by a downward movement to touch and "test" the large trigger once it rolls up. You should search for potential 5-1 chart trend trade long opportunities.
The example below illustrates a termination at the One-to-One levels on the 13-2 chart. As a result, it is advised not to take trend trades on the 5-1 chart. Generally, engaging in such trend trades in this scenario will likely result in losses.
Multiple Divergences at the Same Price Level
When three divergences occur in the same price area, it is a strong indication of a termination condition that is likely to halt the prevailing trend, irrespective of the chart's size or timeframe. This pattern of three divergences holds significant power in reversing the market price in the majority of cases.
When three divergences occur within a narrow range, it often signifies a strong market reversal. In the given example, we observe three divergences on a larger chart, which lead to a robust top formation. Subsequently, the price breaks through the initial Fibonacci support, indicating a significant shift in the market trend to the downside.
In addition to observing large 13-2 chart patterns, it is crucial to consider the small chart patterns that can act as termination conditions for the trend. The picture below illustrates these patterns that should serve as indicators to avoid taking trend trades. Instead, utilize these patterns to enhance your analysis of Fibonacci and trigger lines, fine-tuning your trading approach.
The depicted picture exemplifies the termination of a trend trade when T3 Divergence occurs at a Fibonacci area, coupled with the trigger lines not extending beyond the Fibonacci levels. In such cases, it is crucial to avoid entering new trend trades until there is a change in the state of the Fibonacci, transitioning from Blue to Red or Red to Blue. Recognizing and respecting these conditions will help you effectively manage your trades and make informed trading decisions.
In the illustrated example above, the Fibonacci area indicates the need for a breakout and a color change. The picture below demonstrates the desired state change from Fibonacci red resistance to Fibonacci blue support, aligning with the rules for trend trades to be valid. This specific look signifies when it is appropriate to resume trading with the trend. By adhering to these guidelines, traders can make more informed decisions and identify favorable trading opportunities.
When utilizing the T3 Trigger Line strength on the 13-2 Dynamic Renko chart or any larger chart, it is important to note that there are instances where the smaller chart fails to sustain the ongoing trend while the Trigger lines on the 13-2 chart continue to exhibit strength. Recognizing this divergence between the two charts is crucial in effectively managing risk. By incorporating termination conditions on the smaller chart, traders can better navigate their trades and adjust their positions appropriately. This awareness allows for more informed decision-making and helps ensure risk is effectively managed throughout the trading process.
Last updated
