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 Fibonacci number sequence. However, not because he discovered the sequence on his own, but because they were named after him.
The 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 equal 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 explain how to trade with Fibonacci? Having knowledge is one element, but in reality implementation is another matter entirely. So we will also look at 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 up the first two numbers, which is equal 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 then 144 + 233 = 377.
Interestingly, Fibonacci sequence numbers tend to do quite well as a guide to how long a push or impulsive move can last in a certain number of pips. This applies to all currency pairs. Of course, lower frames will adhere to lower Fib numbers, while higher time ranges will adhere to higher Fib sequence levels.
What are the Fibonacci retracement levels?
These numbers are calculated by dividing the numbers in the Fibonacci sequence (mentioned above).
Here’s an example:
8/13 = 0.618…. equal to 61.8%.
34/89 = 0.382… or 38.2%.
The exception is the sign of 0.5 or 50 percent, which is, in fact, the halfway mark.
Here is the complete 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 way to measure market psychology. Who wouldn’t want to get a 50% discount? Imagine yourself in front of your favorite store and suddenly a person comes out and says: “Everything here is discounted by 50%!” 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 largest quantity is equal to the ratio of the largest to the smallest quantity. In mathematics this means ((A+B)/A) = Phi. But this number is not only important in Forex trading: the Phi number can be seen art and even nature!
What are the Fibonacci target levels?
Fibonacci goals 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 goals by clicking on your Fibonacci properties and then adding these layers to your Fibonacci retracement tool. Be sure to add the minus sign, though.
When is Fibonacci retracement used?
Fibonacci levels are valuable in identifying potential levels of support and resistance. When using the tool for trading purposes, the key is to know when to use Fibonacci tools – the best environment is trend markets. Fibonacci levels work best in trend markets and provide no advantage in ranges.
Plain and simple, Fibs have no value in areas where the price is consolidating, correcting, varying 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.
An example of a triangle.
If the currency, however, is
actually trending or if the Fib is used on higher time frames, then the tool is a great asset because it gives you a great indication of where the market will go back 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 instrument. But traders are also able to use Fibonacci numbers in a different way.
Fibonacci levels can also filter out trade ideas. No trader would want to go long or short in front of a large level of Fib and their trade idea would be invalidated because of this situation.
Fibs are also used as triggers instead of an exact voice. A trader may have a certain level of Fib in mind that they would like to trade. A direct entry order at the Fib level would be one way to address 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, break out or any other confirmation that the price respects the Fib level. We also have training on candle patterns and how to use them.
How to correctly place the Fibonacci retracement
It is crucial to place the Fib retracement tool on the correct top and bottom. I myself am a trader who positions the instrument from left to right, although there are traders who do the opposite and place it from right to left. For me placing the instrument from past price to current price (left to right) is better than from current price to past, and we will use it in future examples.
In any case, Forex traders want to place the Fib in the right place, which is bottom-up in an uptrend and top-down in a downtrend. This top-down move can also be called “swing high swing low”. Positioning the Fib correctly is a fundamental step, otherwise you could miss the leg of a move and be stopped for a loss.
Some key elements to be aware of:
- a) Use tops and bottoms on your time frame – use natural tops and bottoms for swings and legs to position your fib;
- b) Use fractals – Fractals will help you identify the upper and lower parts;
- c) Use Elliott Wave – be sure to fibb a wave 1, wave 3, wave extension (subwaves of a wave), wave A or an entire sequence of 5 waves, otherwise the Fib may fail (when you use it as a tool for voices);
- d) Use the Awesome Oscillator – check when the zero line has been crossed and wait for that zero line to retrace. Now you have confirmation that the move is 1 leg or swing high swing low.
How do you know it’s time to place Fib?
It is important to realize that a new Fib is preferably placed on a new high swing low unless the target has been hit (see Fibonacci targets for more details on levels). The reason is simple: only when the objectives have been achieved is the currency pair, in fact, to confirm a trend mode. If the currency bounces between the top and bottom, then, in fact, the currency is in a range and Forex traders just want to place a new Fib once the trend is back in effect. The most important target to be achieved is -0.618 or -0.272 in one case of the Fibonacci retracement levels of 78.6% and 88.6%.
Using Fibs in conjunction with other tools
Finding the confluence is key. By confluence, I mean finding more reasons to take an exchange.
1) A Fibonacci retracement and a Fibonacci target at the same level –
When a Fib
target and a Fib retracement are aligned at the same price, then the probability of the price reacting to it is substantially increased.
2) Price action and important Fib levels –
Waiting for confirmation of the price reaction to a Fib level is a great way to reduce risk and make sure that the Fib positioning used is correct.
3) Fib levels and key levels in the market (such as daily and weekly 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, using moving averages and/or trend lines with Fibs obviously just as good.
Fibonacci in graphical models and Fibonacci temporal ratios
To understand how Fibonacci plays an integral role in chart patterns, I recommend reading last week’s article that discusses patterns and Fibs in depth.
Fibonacci time ratios explain how long a high swing low swing could take over time before the next high swing low begins. It does this by measuring a completed high swing low swing and then placing 38.2%, 61.8%, 100% of the forward time length. The next high swing low swing 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 significance when used over a higher time period. However, levels tend to work well on all time frames.
Traders can use the tool on 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 could use a Fib enter on a pullback. The first is used as a potential trigger and the second Fib as the actual entry.
What Fibonacci retracement levels do you use?
My regular blog readers already know that I LOVE Fib levels. Because?
They are a great way to measure market psychology. 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 here is 50% off!” Guess what he does with psychology?
The same goes for the Forex market. Suppose there is a trend going on. The trend stops and retraces 50% of the route. Traders will take advantage of this opportunity! Just like buyers.
The KEY is 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 on 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 of the 382, 500 and 618 levels of Fibonacci retracement, of course. Also written like this sometimes: 0.382 / 0.500 / 0.618.
These numbers are calculated by dividing the numbers in the Fibonacci sequence. Except for the 500, which is only halfway.
8/13 = 0.618…. 34/89 = 0.382.
But there are also other Fib levels! Here is the full list I use:
1) 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) L’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 largest quantity is equal to the ratio of the largest to the smallest quantity. 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 Phi number can be seen in the arts and even in nature! Wow.
That said, all levels of Fib have
their importance, and once you know these great levels of Fib, 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 Golden Targets?
Goals are more important and this section will really amaze you! That’s the real beauty of how to trade with Fibs! So sit back tight and postpone that dog walk you could have planned just for a few more minutes!
Pay close attention… the goals you want to add to your Fibonacci retracement tool are:
-0.272
-0.618
These are INCREDIBLE goals. The market really respects these levels.
With these goals now your Forex toolbox, you will never have to doubt a single second in your life where 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 goals by clicking on your Fibonacci properties and then adding these layers to your 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 trap of trading
What I mean by this is: be careful what Fib is!
Every Forex trader wants to place the Fib on the correct swing high swing low!!!
This is crucial. Otherwise, you could miss the 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 placing the correct Fib, be sure to add us to your Twitter follower list and ask us for our opinion. Send us a screenshot and we’ll give you our feedback back! So make sure you use that free resource!
Some key elements to be aware of:
a) Use tops and bottoms on your time frame à use natural tops and briefs for swings and legs to position your fib;
b) Use Elliott Wave to always make sure to fibba 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 check when the zero line has been crossed and wait for a retracement of that zero line. Now you have confirmation that the move is 1 leg;
d) Wait for Fib targets to be hit before placing a new Fib. If the currency does not reach the target, wait with Fibbing for a new leg, because the currency may be moving!
Excellent trading strategy
Read Nathan’s great Fib trading strategy for long-term charts here: “long-term trading strategy for forex”.
Elliot wave
Fibonacci levels go hand in hand with the Waves. And every Forex trader should know this golden guideline:
- 2 waves usually have a deep retracement;
- 4 waves usually have a surface retracement.
- A deep retracement is a 500/618/786/886 Fib.
- A surface retracement is a Fib 236/382/500.
- A retracement of the B wave in a fast correction (zigzag) is often 3382/500/618 retracement.
- A B-wave retracement in a slow rippled correction is often a 786/886/double top or top break up to 1.380.
My trader’s trick
My number 1 tip for everyone is this: find the confluence.
Confluence is key, just like trust.
By confluence, I mean finding more reasons to take 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 likelihood of the price reacting to it is substantially increased.
2. Another method for confluence is the use of price action at important levels of Fib. Waiting for confirmation of the price reaction to a Fib level is a great way to reduce risk and make sure that the Fib positioning used is correct.
3. Using Fib tools 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, using moving averages and/or trend lines with Fibs obviously just as good!
In the next section, we will teach you how to set up breakouts and Fibonacci forex trades.
How to Set Up Breakout & Fibonacci Forex Trades
At one time, the downward trend of the AUDUSD offered an interesting chart for finding 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 bearish trend.
Looking at the 4-hour price action, it becomes clear that several candlesticks were showing difficulties at the 38.2 Fibonacci retracement level, but the bullish twins could have canceled the bearish signals.
Therefore, I kept an eye on the upcoming 4-hour candlesticks trying to see if the price showed new bearish signals or will continue to rise upwards.
In both cases, they are specifically sought for shorts only because of the downward trend (see blue trend line). Here are the two bearish scenarios I’m counting on:
- A break of the 4-hour candlestick low (green circle) for a breakout trade at lower levels (orange arrow);
- A rebound to the Fibonacci confluence of the Fib retracement and the Fib target:
- The 50% retracement of Fib and the target of -27.2 Fib (red circle);
-
The 61.8
- % Fib retracement and the target of -61.8 Fib (dark red circle).
Graphic templates
In either scenario, it is helpful 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 in a big downtrend, 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 upward momentum (green arrow), breaking the downtrend line (blue) and double low (purple circle) at the Fibonacci 61.8 retracement level (light blue), the price may be ready for a bullish breakout (blue arrows) above the resistance line (red).
I was interested in taking a long on resistance breaking (aft candelabrum confirmation) and/or taking a short at Fibonacci goals. There are two valid options for capturing the breakout configuration in countertrend:
- One is to look for a daily candle that pushes across the trend line;
- The other is to monitor the same bullish breakout but on a shorter time frame like the 4-hour chart.
The advantage of the H4, in this case, is the potential for early entry and therefore more space for targets as well.
When I zoom in on the 4-hour chart, I am able to see both a bull flag and a type of contraction triangle of the forex chart pattern. Breaking under the support and breaking above the resistance would indicate breaking the shrinking triangle. A break in both resistance and support levels will be the trigger I’m looking for for the commercial setup. In addition, in this case, a strong candle is guaranteed: near a low or high candle, large in size and most of the candle outside the trend line.
How to trade using the 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 big profits.
There are several ways to trade using the Fibonacci
retracement tool, but I’ve found that one of the best ways to trade Fibonacci is to use it with trend lines. We also have training in drawing trend lines with fractals.
The Fibonacci retracement tool was developed by Leonardo Pisano 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 series of numbers that created Fibonacci ratios describing the natural proportions of things in the universe.
These numbers have been used by traders for many years!
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 amazing tool!
Below is an image of the different reports created by Leonardo. 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 to both the left and right of itself.
A Swing Low is a candlestick with at least two higher minimums both to the left and right of itself.
If you’re not sure what that means, grab a chart to see what it looks like:
So here’s what it would look like then on your graph with the Fibonacci retracement:
Here’s a quick way to remember this concept. If it’s an uptrend, you want to start with the low swing and drag your Fibonacci level up to the high swing. If it’s a downtrend, start with swing high and drag the slider all the way down to swing low. You can also read the strategy on how to use currency strength for successful trading.
Quite simple. Let’s go ahead and take a look at everything we will need with this trading strategy.
Fibonacci Trend Line Trading Strategy Trading Tools
- 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 take advantage of 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 the Fibonacci Retracement, let’s take a look at the rules of the 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, which 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’ve already identified that it’s actually a trend by looking at your chart, you now need to draw your trend line
Draw this on support and resistance levels as the trend is going up or down.
Once you have drawn this trend line, you can 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 on the low swing to the high swing.
Remember that this is an uptrend, so we started at 100% swing low and placed the second 0% level at swing high.
Rule #4 – Wait for the price level to reach the trend line
So far we have found a trend currency pair, drawn a trend line to validate this, and positioned our Fibonacci at swing low and swing high.
This rule is the fundamental step for the strategy, so you need to pay close attention.
Because we need price movements to reach our trend line, stop and return in the direction of the trend.
If it breaks the trend line and continues and blows over 50%, 61.8%, 78.6%, then the trend is obviously broken and you have to look elsewhere because a trade with this strategy would be invalidated at that time.
With that said, let’s take a look at our chart and see what happened.
Great, it
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 it falsifies 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 entry to help us make a safe voice.
Rule #5 – The price must reach the trend line between the lines of 38.2% and 61.8% (Fibonacci golden ratio)
Before you start explaining, look at the chart to see what it means exactly:
The price retraced all the way and tested the 38.2 mark for quite a while before hitting the trend line and continuing to go higher.
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 being activated.
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 lined up to make a big profit on this retracement, what’s the last step to make the trade?
In
a BUY-In to make your entry, you will wait for the price to close above the 38.2% or 50% line.
In
a SELL-In to make your entry, you will wait for the price to close below the 38.2% or 50% line.
Let’s take a look at the charts to clarify this:
Refer to this image when using this strategy. This shows us how our charts will look before making a trade.
*Note: If the price reaches our trend line between the 50% line and the 61.8% line, we will wait for a candlestick 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 located between the 38.2%-50% lines for this example.
This process should not take long, as our trend should continue upwards due to the previous level of support with the trend line.
In the example above, illustrate these rules when the trend line meets the price level in these two zones.
*Note: If the price falls below the 61.8% fib level in the example, you will also have to wait for a candle to close above the 50% level.
The reason you always wait is because you don’t want to get caught up in an interrupted trend and end up being stopped.
Rule #7 Stop Loss Placement
Your stop loss can vary based on what your charts are showing you. Look for resistance or preventive support in the past.
In example trade, the stop was placed between the 50% and 61.8% fib line. For this trade, it made sense because if it broke the 50% fib line, then the uptrend would be invalidated. We want to get out of this BUY trade as quickly as possible.
It is always helpful to look into the past to determine a stop loss.
Fibonacci Retracement Channel Trading Strategy
Before we dive into specifics, let’s look at what tools are needed for the work for the Fibonacci channel trading strategy:
Fortunately, you only need one tool: the Fibonacci channel indicator: this indicator may seem 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 turn FIB levels up or down.
thus:
This will allow you to create perfectly straight parallel lines on support and resistance points on the uptrend or downtrend. Take a look at the “What’s up with 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.
Fibonacci Channel Trading Steps
Step #1 Find a strong downtrend/uptrend that is forming
This step is crucial to get the right one. You need to find a strong current uptrend at this point. Most of the time you will see this happening on a trend reversal. Not always, but a good part of it. Take a look:
We saw a nice uptrend 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 reaching a “resistance” level and then back down forming a “Channel”.
Step #2 In a downtrend, 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 back up, consolidate, so we are ready for business for a sales entry.
Step #3 Wait for the price action to “reach a ceiling”
Here’s what this step will look like:
You can see in the chart above that I have labeled each step of the Fibonacci channel trading strategy. Each step is colorful. So at this point here’s what happened. Price action broke a major uptrend and then caused a long bearish trend (Step #1) Then, after consolidation, price action returned to the upside (step #2) This bullish trend continued for quite a while before consolidating again (step #3).
Step #4: Apply the Fibonacci Channel Indicator
I’ll walk you through where to place this. You’ve already done most of the work already 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.
thus:
Once this is done, congratulations! Now it’s time to look for a trade….
After that it shows you another thing to confirm that this is indeed a channel.
Here’s what it looks like:
Fine! Do you see that on the pull back 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 picture above. There is a lot to digest there!
These are the five main steps required to make a SELL entry based on this strategy. Just follow each step for their color and you got your first entry!
Sell Entry #
1 and Entry #2
So you already know where to enter the first trade.
Right here:
hour.. You want to press your winners with this strategy so that when the price action reaches the 50% mark of the Fibonacci channel indicator you 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 drawn, you will immediately close both trades, without 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 shoppers know this level, so they have BUY entry orders sitting at the 100% line of that channel. Once the price action reaches that level, it will trigger all those buy entries (along with many sellers coming out) and this is what will most likely happen:
You want to use a trailing stop loss. Then, as the price moves downwards, you will move accordingly, stop 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 trailing stop loss is the way to go with the Fibonacci channel trading strategy.
This is how I would look during trade.
Once the Price shares hit the 50% Fib line and we have added a second entry, go ahead and move your stop loss to your first entry at the 38% Fib Line. This will block some profit in case the price action decides to turn you on and head up!
Once the price action touches the Fib line by 78%, it moves both stop losses to the Fibonacci line by 50%. This will lock in the profit for the first trade and you will break on the second trade too! You still win in both cases.
As I said before, you immediately exit both trades when 100% fib. the line is touched!
