Fibonacci was actually called Leonardo Pisano Bigollo. He was an Italian mathematician and considered “the most talented Western mathematician of the Middle Ages”. Fibonacci is well known for the Hindu-Arabic numeral system in Europe, which was published in 1202 in his book Liber Abaci (Book of Calculation).
It is also known for the sequence of Fibonacci numbers. However not because he discovered the sequence on his own, but because they got their name from him.
Numbers were used as an example in the Liber Abaci. The numbers are: 0,1,1,2,3,5,8,13,21,34,55,89,144, etc. The trick is to add the first two numbers, which is equivalent to the third (0+1=1), then continue adding the 2nd and 3rd which are equivalent to the 4th number (1+1=2), etc.
Now that we have introduced the name to all our fellow traders, let’s move on to explain how to trade with Fibonacci? Having knowledge is one element, but in reality implementation is a whole other matter. So we will also see how to trade a Fibonacci trading strategy and how to trade using Fibonacci retracements. You can also read forex trading money management strategies for better trading.
Table of Contents:
What are Fibonacci sequence levels?
Fibonacci sequence numbers are mathematically derived numbers but are easy to calculate. The list of Fib sequence numbers is:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, and continues.
The trick is to add the first two numbers, which is equivalent to the third (0+1=1), then continue adding the 2nd and 3rd which are equivalent to the 4th number (1+1=2), etc. As the numbers are added, a new number is created. The method remains the same even for higher numbers such as 89 + 144 = 233 and therefore 144 + 233 = 377.
Interestingly, Fibonacci sequence numbers tend to do quite well as a guide on how long a push or impulsive move can last in a number of pips. This applies to all currency pairs. Of course, lower frames will adhere to lower Fib numbers, while higher time intervals will adhere to higher Fib sequence levels.
What are Fibonacci retracement levels?
These numbers are calculated by dividing the Fibonacci sequence numbers (mentioned above).
Here is an example:
8/13 = 0.618…. or 61.8%.
34/89 = 0.382… or 38.2%.
The exception is the sign of 0.5 or 50%, which is, in fact, the sign halfway.
Here is the full list of Fibs:
1) 23.6% or 0.236 – i.e. 13/55 = 0.236
2) 38.2% or 0.382 – i.e. 13/34 = 0.382
3) 50.0% or 0.500 – halfway
4) 61.8% or 0.618 – i.e. 13/21 = 0.618
5) 78.6% or 0.786 – square root of 0.618
6) 88.6% or 0.886 – square root of 0.7864
They are a great method to measure the psychology of the market. Who wouldn’t want to get a 50% discount? Imagine yourself in front of your favorite retail store and suddenly a person comes out and says, “Everything in here is 50% discounted!” Guess what he does? It creates a lot of interest. The same goes for the Forex market: traders will take advantage of this opportunity! Just like buyers.
Last but not least, 618 Fib retracement is very important in Forex trading because it is the Phi number. The phi is often called the golden ratio. Two quantities are in the golden ratio if: the ratio of the sum of the quantities to the greater quantity is equal to the ratio of the largest and smallest quantities. In mathematics this means ((A+B)/A) = Phi. But this number is not only important in Forex trading: the Phi number can be seen in the arts and even in nature!
What are the target Fibonacci levels?
Fibonacci lenses are great because they provide great outputs in a trend. The most important objectives of Fibonacci are:
- -0.272
- -0.618
- -1,618
However, there are other Fib lenses worth having on the chart:
- -0.180
- -0.786
- -1,000
- -2,000
- -2,618
- -4,236
You can add these targets by clicking the Fibonacci properties and then adding these layers to the Fibonacci retracement tool. Be sure to add the minus sign, though.
When do you use Fibonacci retracement?
Fibonacci levels are valuable for identifying potential support and resistance levels. When using the instrument for trading purposes, the key is to know when to use Fibonacci instruments – the best environment is trending markets. Fibonacci levels work best in trend markets and do not provide any benefit in the ranges.
Simple and simple, FIBS have no value in areas where the price is consolidating, correcting, spacing and moving sideways. Because? Traders tend to ignore these levels because currencies act and react to different instruments and objects such as top and bottom.
Here is an example of consolidation:
If the currency, however, is actually trending or if the Fib is used over higher time frames, then the tool is a great asset because it gives you a great indication of where the market will return in the direction of the trend.
How is Fibonacci Retracement used?
Traders can use FIBS for their trading decisions and choose their entry, target (see below) and stop loss placement solely based on this tool. But traders are also able to use Fibonacci numbers in a different way.
Fibonacci levels can also filter out business ideas. No trader would want to go long or short in front of a large Fib level and their trading idea would be invalidated due to this situation.
Fibs are also used as triggers instead of an exact entry. A trader may have in mind a certain level of Fib that he would like to trade. A direct entry order at the Fib level would be a way to deal with this configuration. But traders can also see the Fib level as a trigger and enter a trade later after other conditions have been met such as a candlestick pattern, burst or any other confirmation that the price is meeting the Fib level. We also have training on candlestick models and how to use them.
How to Correctly Place Fibonacci Retracement
It is crucial to place the Fib retracement tool at the correct top and bottom. I myself am a trader who places the instrument from left to right, although there are traders who do the opposite and place it from right to left. For me to place the instrument from the past to the current price (from left to right) is better than from the current price to the past, and we will use it in future examples.
In any case, Forex traders want to place the Fib in the correct place, which is from the bottom up in an upward trend and from the top down in a downward trend. This move from top to bottom can also be called “swing high swing low”. Placing the Fib correctly is a vital step, otherwise you could fibbing the wrong leg of a move and stop for a leak.
Some key elements to be aware of:
- Use the tops and bottoms on your time frame – use the natural tops and bottoms for the swings and legs to place your fib;
- Use fractals – Fractals will help you identify the upper and lower parts;
- Use the Elliott wave – be sure to fibbing a wave 1, a wave 3, a wave extension (sub-waves of a wave), an A wave or a whole sequence of 5 waves, otherwise the Fib may fail (when you use it as a tool for input);
- Use the awesome oscillator: check when the zero line has been crossed and wait for a retracement to that zero line. Now you have confirmation that the move is 1 leg or high swing low swing.
How do you know it’s time to place Fib?
It is important to realize that a new Fib is not preferably placed on a new swing high swing low unless the target has been hit (see Fibonacci targets for more details on levels).
The reason is simple: only when the goals have been achieved is the currency pair, in fact, confirming a trend mode. If the currency bounces between high and low, in fact, the currency is in a range and Forex traders want to place a new Fib only once the trend is back in effect.
The most important target to achieve is -0.618 or -0.272 in the case of Fibonacci retracement levels of 78.6% and 88.6%.
Using Fibs in confluence with other tools
Finding the confluence is key. By confluence, I intend to find multiple reasons to make an exchange.
1) A Fibonacci retracement and a Fibonacci target at the same level –
When a Fib target and a Fib retracement are aligned with the same price, the probability that the price will react to it is substantially increased.
2) Price action and important Fib levels –
Waiting for a confirmation of the price reaction to a Fib level is a great method to reduce the risk and make sure that the Fib placement used is correct.
3) Fib levels and key levels in the market (such as day and week support and resistance levels) –
This is another great way to combine various technical analysis tools in the Forex market.
4) Fib levels and trend lines and moving averages –
Last but not least, needless to say, the use of moving averages and / or trend lines with Fibs obviously just as good.
Fibonacci in graphing patterns and Fibonacci time ratios
To understand how Fibonacci plays a fundamental role in graphic patterns, I recommend you read last week’s article that discusses in depth models and Fibs.
Fibonacci time ratios explain how long a low swing high swing may take before the next high swing low begins. It does this by measuring a minimum of completed high swing swing and then placing 38.2%, 61.8%, 100% of the length of time forward. The next swing high swing low has a greater chance of finishing at these Fib levels.
Different time intervals for the Fibonacci sequence
The Fibonacci retracement tool has more importance and meaning when used in a higher time interval. However, levels tend to work well over all time periods in fact.
Traders can use the tool over multiple time frames at once. In one case the FIB could act as a potential turning point for a continuation of the trend over a higher time frame, such as the daily chart. While on a smaller time frame, a trader might use a Fib input on a pullback. The first is used as a potential trigger and the second Fib as the actual voice.
What Fibonacci retracement levels do you use?
My regular blog readers already know that I LOVE Fib levels. Because?
They are a great method to measure the psychology of the market. Who wouldn’t want to get a 50% discount?
I mean, imagine yourself in front of your favorite store and suddenly a person comes out and says, “Hey everything in here is 50% discounted!” Guess what he does with your psychology?
The same goes for the Forex market. Suppose there is a trend going on. The trend stops and retraces 50% of the path. Traders will take advantage of this opportunity! Just like buyers.
The KEY is the trending markets.
Fibonacci levels work best in trending markets.
I repeat… trends!
In consolidations, corrections, intervals and lateral movements, Fibs have less value. Especially on smaller time intervals. The reason is simply that traders, the market in general and therefore price action tend to ignore these levels. In these, currencies act and react to different instruments and elements such as top and bottom.
If the currency, however, is actually trending or if the Fib is used over higher time frames, then the tool is a great asset because it gives you a great indication of where the market is going back in the direction of the trend.
So what are the levels?
Well, all of you have heard about Fibonacci retracement levels of 382, 500 and 618, of course. Also written like this sometimes: 0.382 / 0.500 / 0.618.
These numbers are calculated by dividing the Fibonacci sequence numbers. Except for the 500, which is only halfway there.
8/13 = 0.618…. 34/89 = 0.382.
But there are other Fib levels as well! Here is the complete list I use:
1) The 236 or 0.236 – i.e. 13/55 = 0.236
2) 382 or 0.382 – i.e. 13/34 = 0.382
3) The 500 or 0.500 – halfway
4) 618 or 0.618 – i.e. 13/21 = 0.618
5) The 786 or 0.786 – square root of 0.618
6) 886 or 0.886 – square root of 0.786
What is Golden Phi?
Phi is a crucial element in Forex Trading. The phi is often called the golden ratio. Two quantities are in the golden ratio if: the ratio of the sum of the quantities to the greater quantity is equal to the ratio of the largest and smallest quantities. In mathematics this means ((A+B)/A) = PHI.
The PHI is equal to 0.618!! That’s why 618 Fib retracement is so important in Forex trading.
BUT, this number is not only important in Forex trading! The number Phi can be seen in the arts and even in nature! Wow.
That said, all Fib levels have their importance, and once you know these great Fib levels, you have completed the first small step to succeed with Fibonacci trading. Now you know how to trade with Fibonacci retracement levels. The fun increases much more in the next section!
What are gold lenses?
Goals are more important and this section will really dazzle you! This is the real beauty of how to trade with Fibs! So sit tight and postpone that dog walk you may have planned for a few more minutes!
Pay close attention… the destinations you want to add to the Fibonacci retracement tool are:
-0.272
-0.618
These are AMAZING goals. The market truly respects these levels.
With these goals now your Forex toolbox, you will never have to doubt a single second in your life in which to take profits?!?!
I can give you tons and tons of examples on the charts. The market keeps repeating itself over and over again. These are the levels you want to keep in mind!!
Other objectives that may be important are:
- -1,618
- -2,618
- -1,000
- -2,000
- -0.786
- -4,236
You can add these targets by clicking the Fibonacci properties and then adding these layers to the Fibonacci retracement tool. Oh and be sure to add the minus sign!
The big question from me:
Are any of these numbers new to you?
And my 2nd question: How often do you use Fibonacci retracements and Fibonacci targets?
Avoid the trading trap
What I mean by this is: pay attention to what you Fib!
Every Forex trader wants to place the Fib on the correct swing high swing low!!!
This is crucial. Otherwise, you could fibbing the wrong leg of a move and be stopped for a loss!
Finding the right leg takes time and practice. But it’s worth it!
If you need help entering the correct Fib, be sure to add us to your list of followers on Twitter and ask us for our opinion. Send us a screenshot and we will give you back our feedback! So be sure to use that free resource!
Some key elements to be aware of:
a) Use the tops and bottoms on your time frame à use the natural tops and briefs for the swings and legs to place your fib;
b) Use the Elliott wave to always make sure you fibb a wave 1, a wave 3, a wave A or a whole sequence of 5 waves, otherwise the Fib may not work too well;
c) Use the AO à control when the zero line has been crossed and wait for a retracement to that zero line. Now you have confirmation that the move is 1 leg;
d) Wait for the Fib targets to be hit before placing a new Fib. If the currency does not reach the goal, wait with Fibbing for a new leg, because the currency may vary!
Excellent trading strategy
Read nathan’s grand Fib trading strategy for long-term charts here: “long-term trading strategy for forex.”
Elliot wave
Fibonacci levels go hand in hand with Waves. And every Forex trader should know this golden guideline:
- Wave 2 usually has a deep retracement;
- Wave 4 usually has a surface retracement.
- A deep retracement is a Fib 500/618/786/886.
- A shallow retracement is a Fib 236/382/500.
- A B-wave retracement in a fast correction (zigzag) is often a 3382/500/618 retracement.
- A B-wave retracement in a slow, unstable correction is often a 786/886/double top or a top break up to 1,380.
My trader’s trick
My #1 tip for everyone is this: find the confluence.
Confluence is key, just like trust.
By confluence, I intend to find multiple reasons to make an exchange.
1. This could be, for example, a Fibonacci retracement and a Fibonacci target at the same level. When a Fib target and a Fib retracement align at the same price, the probability that the price will react to it is substantially increased.
2. Another method for confluence is the use of price action at important Fib levels. Waiting for a confirmation of the price reaction to a Fib level is a great method to reduce the risk and make sure that the Fib placement used is correct.
3. Using Fib instruments with key levels in the market such as daily and weekly support and resistance levels is definitely a wise idea. This is another great way to combine various technical analysis tools in the Forex market.
4. Last but not least, needless to say, that the use of moving averages and / or trend lines with Fibs obviously just as good!
In the next section, we will teach you how to set up Fibonacci breakout and forex trades.
How to Set Up Breakout & Fibonacci Forex Trades
At one time, the downward trend of the AUDUSD offered an interesting chart to look for short configurations. In fact, the price had already approached the retracement level of 38.2, which could easily have become a turning point for the continuation of the downward trend.
Looking at the 4-hour price action, it becomes clear that several candles were showing difficulties at the Fibonacci retracement level at 38.2, but the bullish swallowed twins could have reversed the bearish signals.
Therefore, I have been keeping an eye on the next 4-hour candlesticks trying to see if the price has shown renewed bearish signs or will continue to rise higher.
Either way, I’m specifically searched for shorts just because of the downward trend (see blue trend line). Here are the two bearish scenarios I’m counting on:
- A 4-hour low candle break (green circle) for a breakout exchange at lower levels (orange arrow);
- A rebound at the Fibonacci confluence of the Fib retracement and the Fib target:
- The 50% Fib retracement and the Fib -27.2 target (red circle);
- The Fib retracement of 61.8% and the Fib target -61.8 (dark red circle).
Chart templates
In both scenarios, it is useful to wait for a candlestick pattern to confirm that the price is bouncing back to the resistance point or pushing through the support level. This useful tactic has a high rate of ensuring a decent entry at the right time.
The same upward movement could also occur on the NZDUSD. The Kiwi was also on a big downward trend, but recent instability has put bearish ambitions in the freezer. You can also trade with the breakout triangle strategy.
Looking at the Fibonacci retracement level
Looking at the upward momentum (green arrow), the breaking of the downward trend line (blue) and the double bottom (purple circle) at the 61.8 Fibonacci retracement level (light blue), the price may be ready for a bullish breakout (blue arrows) above the resistance line (red).
I was interested in doing a long about breaking resistance (confirmation of the stern candlestick) and / or taking a short to Fibonacci lenses. There are two valid options for capturing the bullish configuration of the countertrend breakout:
- One is to look for a daily candle that pushes through the trend line;
- The other is to monitor the same bullish breakout but over a shorter time frame as the 4-hour chart.
The advantage of the H4, in this case, is the potential for earlier entry and therefore also more space for targets.
When I enlarge the chart to 4 hours, I am able to see both a bull flag and a type of contracting triangle of the forex chart template. Breaking under the support and breaking above the resistance would indicate the breaking of the contracting triangle. A break in both resistance and support levels will be the trigger I’m looking for for a trading setup.
In addition, in this case, a strong candle is justified: close near the low or high candle, considerable, and most of the candle outside the trend line.
How to trade using Fibonacci trend line strategy: 5 steps
Now that we understand the basics of Fibonacci trading, let’s cover using Fibonacci for a trend line strategy. Here is a simple Fibonacci retracement trading strategy that uses this trading tool along with trend lines to find accurate trading entries for large profits.
There are several ways to trade using the Fibonacci retracement tool, but I have found that one of the best ways to trade Fibonacci is to use it with trend lines. We also have training on Trend Line Drawing with Fractals.
The Fibonacci retracement tool was developed by Leonardo Pisano who was born around 1175 AD in Italy. Pisano was known to be “one of the greatest European mathematicians of the Middle Ages”.
He developed a simple set of numbers that created Fibonacci ratios that describe the natural proportions of things in the universe.
These numbers have been used by traders for many years now!
With this Fibonacci trading strategy, you will learn everything you need to know to start trading with the Fibonacci retracement tool. You will discover the meaning of Fibonacci, the Fibonacci algorithm, the Fibonacci biography, the Fibonacci formula for market trading, the Fibonacci series algorithm, the Fibonacci sequence in nature, along with many other useful facts about this great tool!
Below is an image of the different relationships that Leonardo created. We will go into detail later on which of these lines we will use for our trading strategy.
Your charting software should be standard with these reports, however, you are the one who puts them on your chart. Many traders use this tool, which is why it is important to have a trading strategy that incorporates it. You will need to know where to apply these fibs. You will need to place them on the high swing / low swing.
A Swing High is a candlestick with at least two lower highs both to the left and right of itself.
A Swing Low is a candlestick with at least two higher lows both to the left and right of itself.
If you’re not sure what that means, let’s take a chart to see what it looks like:
So here’s what it would look like then on your chart with Fibonacci retracement:
Here’s a quick way to remember this concept. If it’s an upward trend, you want to start with the low swing and drag your Fibonacci level up to the high swing. If it is a downward trend, you start with the high swing and drag the slider to the low swing. You can also read the strategy on how to use the strength of the currency for trading success.
Quite simple. Let’s go ahead and look at everything we will need with this trading strategy.
Trading Tools for Fibonacci Trend Line Trading Strategy
- Fibonacci retracement
- Trend lines
This trading strategy can be used with any market (Forex, Stocks, Options, Futures).
It can also be used in any time frame. This is a trend trading strategy that will benefit from trend retracement.
Forex traders identify Fibonacci retracement levels as areas of support and resistance. For this reason, these levels are observed by many traders, which is why this strategy could make all the difference to your trading success.
Since we know some information about Fibonacci retracement, let’s take a look at the rules of Fibonacci trend line strategy.
Fibonacci Trend Line Trading Rules
Rule #1 – Find a Trending Currency Pair
This is quite simple. We need to make sure it’s an upward or downward trend.
In the example, we will use today this will be an uptrend. We will look for a retracement in the trend and then make an entry according to our rules.
Rule #2 – Draw a trend line
Since you have already identified that it is actually a trend by looking at your chart, now you need to draw your own trend line
Draw this on the support and resistance levels while the trend is going up or down.
Once you’ve drawn this trend line, you’re ready to move on to the next step.
Trend lines are a key component of trading and I always recommend using them when you can.
Rule #3 – Draw Fibonacci from Swing Low to Swing High
Now you can pull out your Fibonacci retracement tool and place it from the low swing to the swing.
Remember that this is an uptrend, so we started at the 100% swing minimum and placed the second level of 0% at the swing high.
Rule #4 – Wait for the price level to reach the trend line
So far we have found a trendy currency pair, drawn a trend line to validate it and placed our Fibonacci at the minimum swing and swing high.
This rule is the critical step for strategy, so you need to be very careful.
Because we need price movements to hit our trend line, stop and return in the direction of trend.
If it breaks the trend line and continues to move forward and blows over 50%, 61.8%, 78.6%, then the trend is obviously broken and you have to look elsewhere because an exchange with this strategy would be invalidated at that time.
That said, let’s take a look at our chart and see what happened.
Great, hit the trend line, so why can’t we just go ahead and BUY now since it’s an uptrend?
Well, if you asked, good question.
As I said, the market tends to follow these lines, but sometimes fake traders and they will end up losing a lot of money when it breaks the trend.
This happens every single day, which is why it’s crucial to have a strategy that helps you know if this breakup can occur.
And we don’t want any of this to happen to you, so we check the criteria for entering to help us make a safe entry.
Rule No. 5 – The price must reach the trend line between 38.2% and 61.8% of the lines (Fibonacci gold ratio)
Before you start explaining, look at the chart to see what it means exactly:
The price went back and tested the 38.2 sign for quite a while before hitting the trend line and continuing to go up.
Once the price reached the trend line we traced, we saw that it was between 38.2-61.8 lines, and therefore our trade was one step closer to activation.
Why does it have to be between these lines for this strategy?
We want to capitalize on the big retracements. And lines 38.2, 50, 61.8 have all proven to be the best retracement lines to use with fibonacci.
Once you find this, look for an entry.
Rule #6 – Entry Point
So everything is aligned to make a big profit on this retracement, what is the last step to make the trade?
In a BUY-In to make your registration, you will wait for the price to close above the line of 38.2% or 50%.
In a SELL-In to make your registration, you will wait for the price to close below the line of 38.2% or 50%.
Let’s take a look at the charts to clarify this:
Refer to this image when using this strategy. This shows us what our charts will look like before making a trade.
*Note: If the price reaches our trend line between the 50% line and the 61.8% fib line, then we will wait for a candle to close above the 50% line to enter the trade.
The only reason to wait for a candle to close above the 38.3% fib line is because it is between the 38.2%-50% lines for this example.
This process should not take much time, as our trend should continue upwards due to the previous level of support with the trend line.
In the previous example, he illustrates these rules when the trend line meets the price level in these two zones.
*Note: If the price drops below the 61.8% fib level in the example, you will also have to wait for a candle to close above the 50% fib level.
The reason you always wait is that you don’t want to get caught in a broken trend and end up being stopped.
Rule #7 Stop Loss Placement
Your stop loss can vary based on what your charts show you. Look into the past for previous resistance or support.
In the example trade, the stop was placed between the fib line of 50% and 61.8%. For this trade, it made sense because if it broke the 50% fib line, then the upward trend would be invalidated. We want to get out of that BUY trade as quickly as possible.
It is always useful to look into the past to determine a stop loss.
Fibonacci Retracement Channel Trading Strategy
Before we dive into the specifics, let’s take a look at what tools you need for the work for fibonacci channel trading strategy:
Fortunately, you only need one tool: the Fibonacci channel indicator: this indicator may look different to you depending on the platform you are using (Tradingview, MT4, Tradestation, Ninjatrader). They are all standard on your platform. This is similar to the Fibonacci retracement tool, only you can rotate FIB levels up or down.
This will allow you to create perfectly straight parallel lines on the support and resistance points on the uptrend or downside. Take a look at the “What happens to Support and Resistance” areas if you don’t have any prior knowledge of what it is.
Now let’s move on to the steps of the Fibonacci channel trading strategy.
Step #1 Find a strong downtrend/uptrend that is forming
This step is crucial to getting the right. You need to find a strong current upward trend at this point. Most of the time you will see it happening on a trend reversal. Not always, but a good part of it. Take a look:
We saw a nice upward trend here before it broke the support line and headed down. At this point it is necessary to continue waiting if the price will “bounce” from a certain level and return to the upside.
Note** Our Fibonacci tool is not yet in play. At this point, we are waiting for the price action to return to the upside and reach a level of “resistance” and then return to the downside forming a “Channel”
Phase #2 In a downward trend, wait for the price action to consolidate and return to the upside.
Here’s what it looks like:
Again, there is nothing here that we are interested in trading. Price action needs to go upwards, consolidate, so we are ready for the business for a sell item.
Step #3 Wait for the price action to “Hit a Ceiling”
Here’s what this step will look like:
You can see in the chart above that I labeled each step of the Fibonacci channel trading strategy. Each step is colorful. So at this point here’s what happened. Price action broke the main uptrend and then caused a long bearish trend (Step #1) Then, after consolidation, price action returned to the upside (step #2) This uptrend continued for quite a while before consolidating again (step #3).
Step #4: Apply the Fibonacci Channel Indicator
I will guide you through where to place this. You’ve already done most of the work by following steps 1-3, so this step should be very simple.
Place the Fibonacci channel indicator on consolidation #1 and consolidation #2 in the direction of the channel.
Once this is done, congratulations! Now it’s time to look for a trade….
After that shows you another thing to confirm that this is really a channel.
Step #5: Wait for the price action to push down and pull back. (Enter after pull-back)
Here’s what it looks like:
Fine! Do you see that on the pullback hit our channel line? This is exactly what you want to see!
Here are all the steps so far:
Take a minute and study the image above. There is a lot to digest there!
These are the five main steps required to make a SELL entry based on this strategy. Simply follow every step by their color and you got your first voice!
Sell item #1 and voice #2
So you already know where to enter the first trade.
You want to press your winners with this strategy, so when the price action reaches the 50% mark of the Fibonacci channel indicator make a second entry!
So, at this point, you have two trades, both in profit.
Take Profit/Stop Loss
When the price action hits the 100% Fibonacci channel line you have drawn, you will immediately close both trades, no exception!
This is the other level of support. When the price reaches this level there are many things that could happen (mostly badly)
You see, many buyers know this level, so they have BUY entry orders sitting on the 100% line of that channel. Once the price action reaches that level, it will trigger all those buying items (along with many sellers coming out) and this is what will most likely happen:
You want to use a final stop loss. So, as the price moves down, you will move stop loss accordingly. There are advantages and disadvantages to using a trailing stop. Our team tested a few different methods with this strategy and agreed that a final stop loss is the way to go with the Fibonacci channel trading strategy.
Here’s how I would look during the trade.
Once the price shares touch the 50% Fib line and we have added a second item, go ahead and move your stop loss to your first entry at the Fib Line by 38%. This will lock in some profit in case the price action decides to turn you on and head upwards!
Once the price stock touches the 78% Fib line, it moves both stop losses to the 50% Fibonacci line. This will lock in the profit for the first trade and break on the second trade as well! You still win both ways.
As I said before, exit both trades immediately when the fib at 100%.
