A three-part pullback plan with RSI, Fibonacci retracements, and a tight trendline

The three-part order

The archive workflow is a three-part pullback checklist. First confirm swing direction with a 14-period relative-strength-index reading relative to 50. Next mark 38.2%, 50%, and 61.8% fibonacci-retracement levels of a swing that runs from an isolated-low to an isolated-high, or from an isolated-high to an isolated-low. Then wait for a break of a short countertrend line, or for a stop through the bar that tags the retracement, before treating the level as a live hypothesis.

Until that third step occurs, the retracement prices remain observation zones. They are not automatic resting-order levels.

Trend, range, and when not to measure

An uptrend is defined as a sequence of higher lows and higher highs. A downtrend is defined as a sequence of lower lows and lower highs. Markets that fail to hold beyond prior extremes are treated as non-trending ranges.

A fibonacci-retracement is measured on a labeled swing. A range that cannot hold beyond prior extremes does not supply that swing.

Isolated highs and isolated lows

An isolated-high is a three-bar pattern with a lower high on each neighboring bar. An isolated-low is a three-bar pattern with a higher low on each neighboring bar. Those points mark the start and end of the swing used to measure retracements.

In the terms used here, an isolated-high is also a short-term resistance reference, and an isolated-low is also a short-term support reference.

Fibonacci retracement zones

Consecutive Fibonacci numbers approach a ratio of 1.618 and its inverse 0.618. Alternate terms yield 2.618 and its inverse 0.382. Traders map those ratios onto 38.2%, 50%, and 61.8% retracement levels of a labeled swing.

A fibonacci-retracement is a percentage pullback of that labeled swing, drawn at those three percentages of the isolated-low-to-isolated-high or isolated-high-to-isolated-low range.

The RSI momentum-filter

The relative-strength-index used in this plan is a 14-period momentum oscillator of closes. A reading above 50 is used as a bullish-momentum filter that licenses buy-the-pullback setups. A reading below 50 is used as a bearish-momentum filter that licenses sell-the-rally setups.

That split is the momentum-filter. The RSI side of 50 decides whether a retracement is treated as a buy-the-dip or sell-the-rally setup, rather than as a standalone price level.

Two Treasury-bond measurement cases

In the June 1997 Treasury-bond example, an isolated-low at 106-30 and an isolated-high at 110-10 produced a 38.2% retracement near 109-03. Four days later the contract opened at 108-31 and then advanced to new highs.

In the March 1997 Treasury-bond example, an isolated-high at 116-17 and an isolated-low at 112-22 produced a 50% retracement at 114-19, after which the contract made new lows within three days.

Two entry triggers after a retracement is tagged

Retracement prices are treated as observation zones, not automatic resting-order levels. One entry rule is a buy-stop-through-bar: a buy stop above the high of the bar that first trades into 38.2%, 50%, or 61.8%, with a protective stop under that same bar's low.

A second entry rule is to draw a tight trendline along the highs of a bull-market correction or the lows of a bear-market rally, and to enter only when that line is violated after a fibonacci-retracement has been reached. A close or trade through that line is the trigger.

A combined long on the June 30 case

In the June 30 example, green RSI-positive bars, a 61.8% retracement of three isolated-lows, and a next-day rally that both exceeded the prior high and broke a downtrend line were presented as a combined long signal that preceded a new high.