Here I am going to share with you a simple Fibonacci Trading Strategy that uses this trading tool along with trend lines to find accurate trading entries for great profits. There are multiple ways to trade using the Fibonacci Retracement Tool, but I have found that one of the best ways to trade the Fibonacci is by using it with trend lines.
He developed a simple series of numbers that created ratios describing the natural proportions of things in the universe. With this stratregy, you will learn everything you need to know to start trading with the Fibonacci Retracement tool. Below is a picture of the different ratios that Leonardo created. We will get into detail later on as to which of these lines we will use for our trading strategy. Your charting software should come standard with this, however, you are the one that puts this on your chart.
The bottom line is, many traders use this tool which is why it is highly important to have a trading strategy that uses this. You are going to need to know where to apply these fibs. A Swing High is a candlestick with at least two lower highs on both the left and right of itself. A Swing Low is a candlestick with at least two higher lows on both the left and right of itself. So here is what it would look like then on your chart with the Fibonacci Retracement: A quick concept to remember about this is that if it is an uptrend, you want to start with the swing low and drag your Fibonacci level all the way up to the swing high.
Forex traders identify the Fibonacci retracement levels as areas of support and resistance. Because of this, the levels are watched by many traders which are why this strategy could be a difference maker to your trading success. In the example, we will be using today this will be an uptrend. We will be looking for a retracement in the trend and then make an entry based on our rules.
Since you identified already that it is in fact trend by looking at your chart, now you need to draw your trend line. Draw this on the support and resistance levels as the trend is going up or down. Now you can get you Fibonacci Retracement tool out and place it at the swing low to the swing high.
So far we found a trending currency pair, drew a trend line to validate this, and placed our Fibonacci at the swing low and swing high. Because we need the price to hit our trend line, stall, and go back in the direction of the trend. As I said, the market tends to follow these lines, but sometimes it will fake traders out and they will end up losing a lot of money when it breaks the trend.
This happens every single day, which is why it is critical to have a strategy that will help you know if this break may occur. Before I start to explain, look at the chart to see what this exactly means: The price retraced all the way back and tested the Once the price hit our trend line that we drew and we saw that this was in between We want to capitalize on the big retracements.
So everything is lined up to make a great profit on this retracement, what is the last step to make the trade…. In a BUY -In order to make your entry, you will wait for the price to close above either the Refer back to this picture when you use this strategy since this basically shows us what our charts will look like before we make a trade. The only reason to wait for a candle to close above the This process should not take very long, as our trend should continue upwards because of the previous support with the trend line.
In the above example, it illustrates these rules when the trend line meets the price level in these two zones. The reason you always wait, is because you do not want to get caught in a broken trend and end up getting stopped out. Your stop loss can vary based on what you charts are showing you. Look in the past for prior resistance or support. For this trade, it just made sense. You always want to push you winners.
If you entered this trade using this strategy here are some of the returns you could have gotten is just a short period of time:. You could even draw channels to help you find a good take profit mark. I hope you enjoyed this trading strategy and thanks for reading! Tap here to read one of strategy reports that use the Bollinger Bands Indicator!
If you have a question about go ahead and leave a comment below or email us directly at info tradingstrategyguides. Grab the Free PDF Strategy Report that includes other helpful information like more details, more chart images, and many other examples of this strategy in action!
Hi thanks a lot with such a valuable info, can I have someone to help me understand this strategy better. You can email us directly at info tradingstrategyguides. That is our goal Raymond.
To try to make Forex trading simple with easy to understand trading strategies. Excellence strategy, i will follow it since i am very interested both trendline and fibos. Great article and interesting strategy. How would you apply this to a chart that is forming? Or is your suggestion that you wait for the bounce before drawing the trend and checking if it meets your strategy. I had the exact same question. I understand a lot better now. Looking forward to your explainations on other indicators.
Thank you very much. We will certainly be developing more strategies in the near future and posting them for you to learn. And these numbers have been used by traders now for many years!
This is trend trading strategy that will take advantage of Retracement of the trend. Rule 1 Find a Trending currency Pair This is simple enough. Rule 2 Draw a Trend Line Since you identified already that it is in fact trend by looking at your chart, now you need to draw your trend line.
Once you draw this trend line you are good to move on to the next step. Trend lines are a key component to trading and I always recommend using them when you can. Rule 4 Wait for Price level to Hit Trend Line So far we found a trending currency pair, drew a trend line to validate this, and placed our Fibonacci at the swing low and swing high.
This rule is the critical step to the strategy so you need to pay close attention. Well if you asked that, good question. Rule 5 Price Must hit trend line in between Why does it have to be in between these lines for this strategy? Once you find this, look for an entry. Rule 6 Entry Point So everything is lined up to make a great profit on this retracement, what is the last step to make the trade… In a BUY -In order to make your entry, you will wait for the price to close above either the Lets Check out the charts to clarify this: Rule 7 Stop Loss Placement Your stop loss can vary based on what you charts are showing you.
It is always helpful to look in the past to determine a stop loss. Conclusion You always want to push you winners. If you entered this trade using this strategy here are some of the returns you could have gotten is just a short period of time: Which is why I would recommend using a 3 to 1 or even 4 to 1 risk to reward ratio. That is always up to you. You need to decide how much you are willing to risk vs. Some will go for just 20 pips, while others press their winners and usually end up profitable.
Now I know pretty useful about trend line and fibos. They work very well together. Can I use this statergy for trading crude oil? Yes, this strategy can be used trading crude oil. Thank you for the strategy. It is working very well. Thanks to your team for sharing with us!More...