3. Termination Conditions
Understand 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 as profit targets for your trades and indicators of Fibonacci-based areas and patterns that can conclude a trend. It is crucial to avoid initiating new 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 & Assessing The Trigger Line Location: 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 the utmost importance.
Divergence Pivot Stop-Outs:
The divergence line(s) ( represented by the cyan line in this example below ) is a pivotal tool for traders in predicting potential trend reversals. By considering the location of the small and large trigger lines around the divergence lines, traders can gain insights into the likelihood of a low point, terminating and initiating a potential 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. The pivot stop-out of a prior divergence high or low is particularly impactful when it occurs at a Fibonacci area where no trigger lines are positioned above it. 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.
Yellow / Magenta Dots "1:1's":
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 strongly indicates a Termination Condition 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 most 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.
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