Tag: Fibonacci Trading

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Forex Price Action

When Key Fibonacci Level Produces an Engulfing Candle

In today’s lesson, we are going to demonstrate an example of a chart that makes a strong bullish move upon producing a bullish engulfing candle at a key Fibonacci level. We know an engulfing candle creates good momentum. If it is created at a significant Fibonacci level, it often pushes the price towards the trend […]

In today’s lesson, we are going to demonstrate an example of a chart that makes a strong bullish move upon producing a bullish engulfing candle at a key Fibonacci level. We know an engulfing candle creates good momentum. If it is created at a significant Fibonacci level, it often pushes the price towards the trend […]

In today’s lesson, we are going to demonstrate an example of a chart that makes a strong bullish move upon producing a bullish engulfing candle at a key Fibonacci level. We know an engulfing candle creates good momentum. If it is created at a significant Fibonacci level, it often pushes the price towards the trend further than traders’ expectations. Let us see and find out what and how that happens.

It is an H1 chart. The chart shows that the price heads towards the South. It keeps making new lower lows. At the last bounce, the chart produces a Morning Star. It may make a bullish reversal now. Let us wait and see whether it makes a breakout at the last swing high or not.

The chart produces four consecutive bullish candles. The price breaches the last swing high. The buyers may wait for the price to consolidate around the breakout level and get a bullish reversal candle to go long in the pair.

It produces a bearish candle closing within the breakout level. The buyers may keep their eyes sharp to see how the next candle comes out. A bullish reversal candle followed by a breakout at the highest high is the signal to trigger a long entry. If the reversal candle comes out as a bullish engulfing candle closing above the resistance, the buyers may trigger a long entry right after the candle closes.

The candle comes out as a bullish engulfing candle closing well above the resistance. The buyers may trigger a long entry right after the candle closes. Since it is an H1 chart, Fibonacci levels come extremely handy to determine the take profit level. We find out that in a minute. At first, let us find out what the price does.

The price heads towards the North with extreme bullish momentum. It produces only one bearish candle and resumes its bullish journey. With naked eyes, we can tell that the price travels about 4R. It means as far as risk-reward is concerned, it is an excellent deal. Let us draw Fibonacci and see price trends from where to where.

The price makes the bullish reversal at 61.8% and heads towards the level of 161.8% in a hurry. It makes a breakout at 161.8% consolidates and resumes its bullish move. Ideally, the buyers should set their take profit at 161.8%. It would allow them to take 1:2 risk-reward. However, we have seen here that the price travels towards the North even further than that. It often happens when the reversal candle comes out as a bullish engulfing candle, and it is produced at the key Fibonacci level at 61.8%. We may not be too greedy but set our take profit at 161.8% in such cases. However, back in our mind, we know that we are dealing with an excellent trade setup.

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Forex Daily Topic Forex Fibonacci

Fibonacci Trading: Fibonacci Levels Help Traders be Precise

Fibonacci Trading: Fibonacci Levels Help Traders be Precise

Fibonacci Trading: Fibonacci Levels Help Traders be Precise

Fibonacci Trading: Fibonacci Levels Help Traders be Precise

In today’s lesson, we are going to demonstrate an example of a chart where the price makes a bullish move from 78.6% Fibonacci level. The 78.6% Fibonacci level often makes the price reverse towards the trend’s direction. In today’s example, the price produces a Morning Star and heads towards the trend’s direction with good bullish momentum. Let us see how it happens.

It is an H4 chart. The price produces double bottom and heads towards the North with good bullish momentum. On its way, it produces only a single bearish candle. The buyers are to wait for the price to make a bearish correction and to get a bullish reversal candle to go long with a good risk-reward in the pair.

The chart produces a bearish inside bar. Then, it produces one more bearish candle. Look at the last candle. It comes out as a doji candle. It seems that the price may have found its support. A strong bullish reversal candle may attract the buyers to go long in the pair and push the price towards the North to make a new higher high.

The chart produces a bullish engulfing candle. The combination of the last three candles is called Morning Star. This is one of the strongest bullish reversal patterns in the Forex market. The buyers may trigger a long entry right after the last candle closes. They may set stop loss below the signal candle’s lowest low. We’ll find out the take-profit level in a minute. Let us first see how the trade goes here.

The price heads towards the trend’s direction with extreme bullish momentum. The last candle comes out as a bearish inside bar. It may make a bearish correction now. Some sellers may close their trade manually after the last candle. You may notice if they do that, they lose a few pips. How about if we knew that the price may make a bearish reversal from here before the last candle is produced. Yes, it is possible by using Fibonacci levels. Let us draw Fibonacci levels on the chart.

The chart shows that the price trends from 78.6% level. When the level of 78.6% makes the price move, it usually makes a reversal at 138.2%. Thus, if we set our take profit at 138.2%, we do not have to wait to get a bearish reversal candle to close our trade manually. It saves our time and gets us more pips too. This is why Fibonacci (extension/ retracement) is called a magic trading tool, since it helps traders in taking and exiting with precision.

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Forex Daily Topic Forex Fibonacci

Fibonacci Trading: A Reversal Candle is to be Followed by a Good Signal Candle

In today’s lesson, we are going to demonstrate an example of an H1-15M chart, which made a good bullish move upon producing a bullish reversal candle at a key Fibonacci level. The H1 chart produces an H1 bullish engulfing candle earlier, but the price does not head towards the North. It takes time then produces another bullish reversal candle. It then heads towards the North with good bullish momentum. We try to find out why it does not make a bullish move at the first attempt but makes it at the second.

In today’s lesson, we are going to demonstrate an example of an H1-15M chart, which made a good bullish move upon producing a bullish reversal candle at a key Fibonacci level. The H1 chart produces an H1 bullish engulfing candle earlier, but the price does not head towards the North. It takes time then produces another bullish reversal candle. It then heads towards the North with good bullish momentum. We try to find out why it does not make a bullish move at the first attempt but makes it at the second.

In today’s lesson, we are going to demonstrate an example of an H1-15M chart, which made a good bullish move upon producing a bullish reversal candle at a key Fibonacci level. The H1 chart produces an H1 bullish engulfing candle earlier, but the price does not head towards the North. It takes time then produces another bullish reversal candle. It then heads towards the North with good bullish momentum. We try to find out why it does not make a bullish move at the first attempt but makes it at the second.

This is an H1 chart. The chart shows that the price makes a good bullish move and then makes a bearish correction. It consolidates for a while at a level of support and produces a bullish engulfing candle. The H1-15M combination traders may flip over to the 15M chart to trigger entry upon getting a 15M bullish candle. Let us find out what happens next.

This is the H1 chart too. The chart shows that the price produces a bearish engulfing candle instead. We have not flipped over to the 15M chart yet. Let us find out how the 15M chart looks.

This is the 15M chart. The chart shows that the price does not produce any bullish candle closing ahead of the H1 bullish reversal candle. Thus, the price heads towards the South. The last candle comes out as a bearish engulfing candle in the 15M chart. It does not look good for the buyers anymore.

The price consolidates with more candles. The last candle comes out as a bullish engulfing candle again. The chart produces the candle at the same level. The combination traders may flip over to the 15M chart again to look for entry. Let us find out what the 15M chart produces this time.

This is how the 15M chart looks. The buyers may wait for a 15M candle to close above the last H1 candle’s close. The chart suggests that the level of support is a strong one, which may push the price towards the North with good bullish momentum.

The last candle comes out as a bullish candle closing above the last H1 candle’s resistance. The buyers may trigger a long entry right after the candle closes by setting stop loss below the level of support. We find out the level take profit with the help of Fibonacci levels.

See how the price moves towards the North. The price makes a bullish move and makes a new higher high. It makes a bearish correction and then heads towards the North again. Let us draw the Fibonacci extension on the chart.

The Fibonacci level shows that the price hits 161.8%. It goes even further up. It makes a bearish correction before producing the last wave. The level of 100% works as a level of support.

We have seen how important it is that the 15M chart produces a bullish continuation candle to offer an entry. At the first reversal, the price does not head towards the North since the chart does not produce any 15M bullish continuation. On the second occasion, it produces  a bullish continuation, and the buyers find an opportunity to go long and push the price towards the magic Fibonacci level of 161.8%

 

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Forex Fibonacci

Fibonacci Trading: How Fibonacci Levels Give Clues to the Traders

In today’s Fibonacci lesson, we are going to demonstrate an example of a chart, which makes a bearish move. We dig into the charts and find out how we can take an entry based on Fibonacci levels and how the levels may help us giving clues to execute our plan. Let us get started.

In today’s Fibonacci lesson, we are going to demonstrate an example of a chart, which makes a bearish move. We dig into the charts and find out how we can take an entry based on Fibonacci levels and how the levels may help us giving clues to execute our plan. Let us get started.

In today’s Fibonacci lesson, we are going to demonstrate an example of a chart, which makes a bearish move. We dig into the charts and find out how we can take an entry based on Fibonacci levels and how the levels may help us giving clues to execute our plan. Let us get started.

The above figure shows an H1 chart. The chart shows that the price makes a bearish move at a moderate pace. It seems that the price finds its support. It has been having consolidation around the level of support having bounces three times. The last candle in this chart comes out as a bullish Marubozu candle. This may push the price towards the North. However, the sellers may still have the hope that they may get a bearish breakout here. Let us proceed to the next chart to find out what the price does.

The chart produces a bearish engulfing candle breaching the level of support. The pair trades for two more candles after the breakout. An important point is to be noticed here that the price is having an upside correction after the breakout. Sometimes price keeps trending after a breakout, whereas sometimes price makes the correction. Fibonacci levels have an important role to play in this. Thus, if we use Fibonacci levels, we are able to find out whether the price trends or makes correction well ahead. Let us now find out how we take the entry. We are to flip over to the minor chart. Since this is an H1 chart, we may flip over to the 15 M chart to trigger the entry.

Look at the arrowed candle. The candle comes out as a bearish Marubozu candle forming track rail. The candle is formed right at a flipped resistance. A short entry may be triggered right after the arrowed candle closes. The chart also shows how the price heads towards the South after the signal candle. Let us now see the H1 chart with Fibonacci levels.

The chart shows that the price trends from 78.6% level. Thus, it may reverse at 138.2%. It hits 161.8% here. However, we may set our target at 138.2% if the price trends from 78.6% to be safe. The Stop Loss may be set here above 100.0 Fibonacci level.

These are the things we must remember when we trade a chart trending from a 78.6% level.

  1. The price may make a reversal at 138.2.
  2. If the price trends from 78.2%, it most probably makes a correction after the breakout. Otherwise, it does not give a good risk-reward as well.

 

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Forex Fibonacci

Fibonacci Trading: When Momentum is Lacking

Traders wait for the price to trend from 61.8% Fibonacci level. This is what attracts more traders to trade, which generates good momentum. When the price trends from 61.8% level, it usually goes up to 161.8%. Since the price gets enough space to move, it offers better risk-reward. This is another reason that Fibonacci traders love to trade in a chart when the price trends from 61.8%. However, the Forex market is uncertain. We may see that the price does not head towards 161.8% with good momentum upon trending from 61.8% from time to time. In today’s lesson, we are going to demonstrate an example of this.

Traders wait for the price to trend from 61.8% Fibonacci level. This is what attracts more traders to trade, which generates good momentum. When the price trends from 61.8% level, it usually goes up to 161.8%. Since the price gets enough space to move, it offers better risk-reward. This is another reason that Fibonacci traders love to trade in a chart when the price trends from 61.8%. However, the Forex market is uncertain. We may see that the price does not head towards 161.8% with good momentum upon trending from 61.8% from time to time. In today’s lesson, we are going to demonstrate an example of this.

Traders wait for the price to trend from 61.8% Fibonacci level. This is what attracts more traders to trade, which generates good momentum. When the price trends from 61.8% level, it usually goes up to 161.8%. Since the price gets enough space to move, it offers better risk-reward. This is another reason that Fibonacci traders love to trade in a chart when the price trends from 61.8%. However, the Forex market is uncertain. We may see that the price does not head towards 161.8% with good momentum upon trending from 61.8% from time to time. In today’s lesson, we are going to demonstrate an example of this.

This is an H1 chart. The chart shows that the price heads towards the South with good bearish momentum. Upon producing a strong bearish candle, it starts having a bullish correction. Fibonacci traders shall get themselves ready by drawing Fibo levels on the chart to find out potential short opportunities in the pair.

Here it is. The chart shows that the price breaches 78.6% level and trades above the level for two more candles. This means the price is in 61.8% zone. If the price trends from here, it may go towards 161.8% level. Yes, it would be better if the price goes towards the North and trends right from the level 61.8%. Nevertheless, the sellers still are to count the move from 61.8% zone. The chart produces a bearish engulfing candle followed by a doji candle. Since the reversal candle comes out as a bearish engulfing candle forming from 61.8% zone, some sellers may trigger a short entry (some may wait for the price to breach the last lowest low). Let us proceed to the next chart to find out what the price does.

The price heads towards the South and it makes a breakout at the last swing low as well. The pair may get more short orders now. However, the price does not head towards the South. It seems that 161.8% level is far away for the price to reach. It does not usually happen but this is how the Forex market runs. It does not always run on a single equation. A question may be raised here what does a trader do with his entry? Since it is an H1 chart based entry, it must be left behind and let it decide its fate by setting Stop Loss and Take Profit accordingly.

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Forex Course

69. Fibonacci Trading – Detailed Summary

Introduction

Introduction

Introduction

In the past eight lessons, we have learned many things about Fibonacci levels and ratios. We have understood various applications of these levels and identified many ways through which we can profit from these levels. In this article, we are going to summarize all the learnings related to Fibonacci. This article acts as a quick recap of what we have understood until now.

Taking a Trade Using Fibonacci Levels

Entering a trade using the Fibonacci levels is pretty straight forward. We have to wait for the price to retrace and reach the appropriate Fib levels. In an uptrend, these Fib levels are 50% and 61.8%. In a downtrend, these levels are 50% and 38.2%. Hence, both 61.8% & 38.2% are known as Golden Fib ratios. Once the price reaches these levels, you can enter a trade after getting a confirmation. A detailed explanation of this can be found in this article.

Pairing Fibonacci Levels With Other Technical Tools

Fibonacci levels can be used stand-alone to enter a trade. But it is always recommended to use other technical tools to be extra sure about your trades. This is because the Fib levels are not foolproof. That means the price may not respect these Fib levels 100% of the time. More about this can be understood here.

So, to be extra affirmative on what you are doing, make sure to combine the fib levels with other reliable indicators. Some of the tools we used to explain this concept are Support & Resistance levels, Trendlines, Candlestick Patterns, etc.

Using Fibonacci Levels For Risk Management

Not just for entires, Fibonacci levels can also be used for managing and exiting a trade. We know how important risk management is in trading. These levels will help us in managing risk and maximizing profit if used correctly. What we are trying to tell here is that Fib levels act as a perfect tool to place our Stop-Loss and Take-Proft orders accurately.

Fibonacci extensions must be used to decide the placement of various Take-Profit levels. To place accurate Stop-Loss, just used the Fib level, which is below the point of entry in an uptrend. Likewise, use the Fib level, which is above the point of entry in a downtrend. For a more detailed explanation, you can refer to the below articles.

Stop-Loss | Take-Profit

Downloading The Fibonacci Indicator

Fibonacci indicators these days are very well designed and readily available in the market for free. Almost all of the trading platforms are equipped with a Fibonacci indicator that can be accessed on to the charts with just a click. If you are using the TradingView platform, a comprehensive Fibonacci indicator is present in the left side panel. If you are a MetaTrader user, there are some default Fib indicators, but the best one is the Auto Fib, which can be downloaded here.

Other Applications Of Fibonacci Levels

The applications of the Fibonacci levels are not confined to the ones discussed above. There are many other places where these ratios & levels are used for various other reasons. For instance, to confirm almost all of the Harmonic patterns, we use Fibonacci levels. An example of one such article can be found here. In this example, we have confirmed the formation of the Butterfly pattern on the price charts by using Fibonacci levels alone. So every technical trader needs to know and learn how to use these levels to have the edge over financial markets.

That’s about Fibonacci levels. If you have any doubts, let us know in the comments below. In the upcoming course lessons, we will be discussing more technical tools like Moving Averages, Indicators, Oscillators, etc. Hence, stay tuned for more informative content.

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Forex Course

68. Using Fibonacci Retracements To Place Appropriate Stop-Loss

Introduction

Introduction

Introduction

Until now, we have paired the Fibonacci levels with various technical tools to find appropriate trading opportunities. Some of them include support/resistance, trendlines, and even candlestick patterns. In the previous lesson, we also saw how to place appropriate ‘take-profit’ orders to maximize our profits. The uses of the Fibonacci levels do not end here. There is another incredible application of these levels, and that is to find the appropriate ‘stop-loss’ levels. ‘

As a trader, one should always use the ‘Stop-Loss’ orde as they are critical to avoid the risk of bearing huge losses. In some adverse situations, if this order is not used, it would result in a complete drain of trading capital where we can have the risk of losing everything in a single trade. Placing an appropriate stop-loss ensures that we do not expose ourselves to the unbearable risk.

However, placing the stop-loss order randomly might expose us to the risk of getting stopped out very early. So the proper placement of this order is crucial, and it can be hard for traders who aren’t experienced enough. So the Fibonacci tool can be a great help for us in determining accurate stop-loss levels.

Using Fibonacci Levels To Place Appropriate Stop-Loss Orders

In the below chart, we see a big initial move to the upside on which the Fibonacci levels are plotted using the Swing low and Swing high. Using the ‘Fibonacci strategy,’ we can notice a retracement that has reacted fairly well from the 61.8% Fib level, and now if the next candle is green, this could be a confirmation for us to go ‘long.’

We notice in the below chart that the next candle appears to be Green, and now with that confirmation, we can place our ‘buy’ trades with appropriate ‘stop-loss’ and ‘take profit.’ The traditional way of using a stop-loss order is to place it 50 pips away from the point of entry. Most of the novice traders use this method even today. This is said to be a layman’s approach with no suitable reasoning. When we use such methods, there is a high chance of we getting stopped out before the trade moves in our favor.

The below chart shows that how placing a 50 pip stop-loss can prove to be dangerous. We can see the stop-loss getting triggered by the immediate next candle after the entry was made.

Now let’s see how to place the stop-loss order using Fibonacci levels. The strategy is to place the stop-loss at the Fib level, which is below the Fib level from where the retracement reacts and gives a confirmation candle. Taking the above example, since the retracement touched the 61.8% Fib ratio and gave a confirmation candle, the stop-loss will be placed at the 78.6% Fib ratio. This seems to be very simple, yet most traders are not aware of this.

In the above chart, we can see how the price just misses our stop-loss placed at the 78.6 Fib level and later directly went to our take-profit. This shows the precision of stop-loss placement, which was established using the Fibonacci levels.

Conclusion

We must understand that stop-loss determination is a crucial step and has to be calculated mathematically using any reliable technical indicators. Indicators like Fibonacci have a mathematical approach in determining these levels. Make sure to use these levels before going to place your stop-loss levels next and let us know how they have worked for you. Cheers!

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Forex Course

66. Pairing The Fibonacci Levels With Trendlines

Introduction In the previous articles, we learned how Fibonacci retracements give extra confirmations while trading the support & resistance levels. We also know that Fibonacci levels can be used as a confirmation tool to trade many candlestick patterns as well. Now we shall extend this discussion and understand how Fibonacci retracements can be traded using […]

Introduction In the previous articles, we learned how Fibonacci retracements give extra confirmations while trading the support & resistance levels. We also know that Fibonacci levels can be used as a confirmation tool to trade many candlestick patterns as well. Now we shall extend this discussion and understand how Fibonacci retracements can be traded using […]

Introduction

In the previous articles, we learned how Fibonacci retracements give extra confirmations while trading the support & resistance levels. We also know that Fibonacci levels can be used as a confirmation tool to trade many candlestick patterns as well. Now we shall extend this discussion and understand how Fibonacci retracements can be traded using the trendlines.

Trendlines are a crucial part of technical analysis. They are primarily used to identify trends, be it up or down. Trendlines being such an important part of trading, when combined with the Fibonacci indicator, can produce trades that have the highest probability of winning. So let us see how this can be done.

Combining Fibonacci Levels & Trendlines

In the below chart, we have, firstly, identified an uptrend and drew a supporting trendline to it. The next step is to plot Fibonacci on the chart by identifying a swing low and a swing high. The marked area shows where all our trading is going to take place and the region in which we will find our swing low and swing high.

The traditional way of selecting a swing low is when the point intersects with the trendline, just as we have done in this case (below image). The swing high will be the point where the market halts and reverses for a while.

In the below chart, we have used the chosen a swing low and swing high to plot our Fibonacci indicator. In order to combine the Fibonacci with trendline, we must wait to see if the retracement from the swing high touches the 50% or 61.8% Fib level. After touching any of these levels, if the market gives a confirmation candle, it could be a perfect setup to go long. The retracement, in this case, touches the 50% level, which coincides exactly with the upward trendline. The next and final step is to look for a confirmation candle, if any.

We have gotten a confirmation sign from the market after the second green candle closes above the 23.6% Fib level (below image). Hence traders can now take risk-free positions on the ‘long’ side of the market with a stop-loss below the 61.8% Fib level and with an aggressive target above the recent high. This trade results in a risk to reward ratio of 1.5.

We should not forget that if the retracement does not take support at the 50% or 61.8% Fib level and goes further down, breaking all the levels, it could be a potential reversal sign. Thus the retracement that is coinciding with the trendline and reacting from 50% or 61.8% Fib level is the thumb of the rule of this strategy.

The above is a more widened image of the chart shows that the market continues to trend upwards, crossing our ‘take-profit‘ area. To take advantage of the market’s trending nature, we can place a trailing stop-loss order to maximize our profits.

Conclusion

When trends start to develop in the market, one should start looking for ways to go ‘long’ or ‘short’ by using necessary technical indicators that give a better chance of a profitable trade. The Fibonacci indicator is one such powerful tool to help traders find potential entry points. We hope you understood this concept clearly. Let us know if you have any questions in the comments below. Do not forget to take the quiz before you go. Cheers!

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Forex Course

67. Using Fibonacci Extensions To Place Accurate Take-Profit Orders

Introduction

Introduction

Introduction

We have discussed the many applications of the Fibonacci levels in our previous course lessons. Now its time to explore the scope of these levels in the most integral part of trading, which is money management. We are all familiar with the ‘take-profit’ order and also know how crucial it is to determine the same before entering a trade.

There are numerous ways to determine the ‘take-profit‘ levels to maximize our profits, but the Fibonacci levels are said to be extremely accurate. In this article, we will validate the accuracy of the Fibonacci indicator in determining the ‘take-profit’ levels.

Placing Accurate Take-Profit Order Using Fib Levels

To find a trade, we need first to establish a significant trend. The primary trend could either be a continuation of a previous trend or beginning of a new trend after a market reversal. In the below chart, we can observe the market reversal to the upside. We must wait for its retracement; if the retracement follows all the rules of our Fibonacci strategy (discussed in the Fibonacci article), we can proceed to take the trade.

In the below image, we can notice a pullback coming in from the swing high. We will be evaluating this swing high using the Fibonacci levels. The Fibonacci levels used in this particular strategy for determining the accurate ‘take-profit’ placement are different from the usual Fibonacci levels we used in all the previous articles.

We are going to use ‘Fibonacci Extensions’ instead of retracements here. These extensions can be plotted on to the charts by using an indicator that can be found in most of the trading platforms. We use the Tradingview platform for our charting purpose, and this indicator can be found on the drawing panel of TradingView. It is available in the sub-menu of the Fibonacci tool folder and named as ‘Trend-Based Fib Extension.

To plot Fibonacci extension on the chart, first, click on a significant low, then drag the cursor and click on the recent high. Finally, drag the cursor back to the swing low. We can also highlight the Fib ratios by clicking on the retracement levels. Don’t forget to include the Fib ratios on the chart that are above 100%, as our take-profit methodology is based on those ratios.

The below chart shows how the Fibonacci Extensions are plotted on the chart using the swing low and swing high. We also see from the chart that the retracement is exactly reacting from the 50% Fib levels, which could a sign of trend continuation. But to be sure, it is prominent to have a confirmation candle at this place.

We get a bullish confirmation candle in the direction of the dominant trend, after which a potential trade entry can be made to the ‘buy’ side.

Right after entry, it is essential to determine our take-profit and stop-loss areas. Here is the part where we will be using our Fibonacci Extensions. The strategy is to take some profits at 127%, and then at 141% and remaining profits at 161%.

The take-profit points are clearly shown in the below chart. One can see that the market falls exactly after touching the respective Fib extension levels. By following this method, one can maximize their gains by taking profits at every subsequent point. The risk to reward ratio in this trade is also outstanding.

The below chart shows that the market continues to take support at the 50% fib level and eventually breaks out above our final take-profit order. The trend has completely reversed from a downtrend to an uptrend.

Conclusion

The Fibonacci tool can be used to find potential exit points in a trade with a great degree of accuracy. Hence, rather than taking a simple approach to determining the target points of the trade, we must make use of Fibonacci Extention levels to maximize our grains. Please remember that these extensions are not guaranteed levels too. So it is important not to depend upon them completely. Cheers!

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Forex Course

64. Trading Support & Resistance Levels Using Fibonacci Levels

Introduction

Introduction

Introduction

In the previous lessons, we understood how to use the Fibonacci tool to trade the pullback of a trend. We have also learnt how these Fib levels are not foolproof. Now, in this lesson, let’s extend this discussion to see how the Fibonacci tool can be used in conjunction with Support and Resistance – arguably the most critical levels on a price chart.

Support is the area where the price rejects to go down and bounce back further. This area acts as a floor where the price gets stopped. Resistance is the opposite of Support. At this level, the price finds it very hard to go up as it acts as a ceiling. The general idea is to buy at the Support and sell at Resistance. But blindly buying and selling at these levels carry huge risk as there is no guarantee that these levels will work each time.

So let’s use Fibonacci levels to determine the working of these S&R levels. Basically, we are combining both Support Resistance and Fib levels to increase the accuracy of trading signals generated. Let’s get started.

In the below chart, we have identified a strong resistance area, and now we must wait to see if it creates an area of Support after breaching the Resistance. It is always advisable to buy at ‘resistance turned support.’ Also, if the price has broken a strong resistance with multiple touches, there is a higher chance of it turning into Support. At the marked region below, we can see the price breaking the strong resistance area.

In the marked regions below, we can see the price retracing after breaking the Resistance. So in order to combine this support resistance level with Fib levels, we must identify the swing low and a swing high. As we can see below, we have also plotted the Fibonacci levels on the chart using a Fib indicator.

Ideally, if we get a retracement at the 61.8% Fib level and a confirmation candle, we can confidently enter for a buy. If the market does not react at any of the Fib levels, this could be a sign that the Support is no longer strong, and it can be broken.

As per the theory of Support and Resistance, the market must react at the previous Resistance and bounce off. From the below chart, it is clear that the retracement has reached our S/R line, which is exactly coinciding with the 61.8 Fib level. Now it is a clear indication for us to go long once we see a confirmation candle.

In the below chart, we can see that the price has exactly bounced off from the 61.8% Fib level and printed a bullish candle giving us a confirmation sign. Right after the confirmation candle, we can place our buy trade with a stop-loss at 78.6% Fib level and take-profit anywhere near the high.

Further, in the below chart, we can see the market making higher highs breaking the previous resistance levels. From this trade, we learn that, when Fibonacci is used near S/R as a confirmation tool, it increases the odds of that level performing. The price will surely take Support at the Fib levels and continue its trend.

One can notice that the ‘buy’ happens precisely at the 61.8% Fib level near Resistance turned support line. The market continues to take Support at this level until, eventually, it breakouts on the upside. This shows the power of the Fibonacci indicator when combined with S&R levels.

There are many other credible indicators that are reliable and can be combined with S&R levels. But Fibonacci is one of the most used ones by the traders across the world.

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63. Reasons Why We Should Never Completely Depend On Fib levels?

Introduction

Introduction

Introduction

In the previous article, we learnt how exactly to trade using the Fibonacci levels. There are many other ways through which Fib levels can be traded. Some of them include trading these levels using S&R, Trendlines, and even candlestick patterns. Before learning all of these ways, we must know that these levels are not guaranteed and cannot be traded stand-alone. So in this article, let’s discuss why one should be very careful while trading Fibonacci retracements.

Fibonacci Levels Will Not Be Respected Always

Every technical level ultimately breaks at a certain point in time, and that is the case with Fibonacci levels as well. In the previous article, we had learnt that Fibonacci levels also act as potential support and resistance areas. So these levels do break just as how S&R levels break. Therefore we must keep in mind that these levels are not foolproof.

Let’s understand this with the help of an example. But before that, make sure to read our article on ‘How to trade Fib retracements’ to understand this better. You can find that lesson here.

In the price chart below, we can see an initial big move to the downside. So basically, here we must wait for the retracement, and that retracement must touch the Fibo levels. Let’s see what happens in the next step.

We saw the retracement (below chart) of the downward move, and we have placed the Fib levels from swing high to swing low since it is a downtrend.

Then we can see the retracement reaching the 50% Fib level and holding there. Ideally, at this point, the retracement must stop, and the market’s original downtrend should continue. Also, we should be placing our ‘sell’ trades as the Red confirmation candle can clearly be seen.

But, to our surprise, we observe that the price did not respect our strategy, and the market shot up to the north, violating all the Fibonacci levels, as shown in the below chart.

While Fibonacci retracement levels give us a high probability of the trade working in our favor, like any other technical analysis tool, they don’t always work. One can never be entirely certain that the price will respect the 50% or 38.2% or any Fibonacci level for that matter.

If you are an experienced technical trader, you wouldn’t have placed a sell trade in the above scenario. It was clear that the sellers are losing momentum. The formation of a bearish Doji candle at the bottom (below chart) is another confirmation of a trend reversal.

So we should be looking at the bigger picture, or we should take the help of any other technical tools to confirm the signals generated by the Fibonacci levels. Never completely depend on them.

Conclusion

Apart from the things that we discussed above, there is another issue while using these Fib ratios, which is determining the appropriate swing low and swing high. Everyone looks at charts differently. They trade at different time frames and have their own fundamental reason for buying or selling the currency pair.

Swing high for one trader might likely be different than swing high for another. And when the Fib ratios are placed incorrectly, of course, the trading signals generated won’t be accurate. Also, the prerequisite for Fibonacci trading is trending markets. When the market is in a consolidation or moving sideways, it is obviously not possible to trade with these ratios.

We hope you understood this lesson well. If you find this complicated or if you have any questions, please let us know in the comments below. Cheers.

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62. Using Fibonacci Retracements To Enter A Trade

Introduction

Introduction

Introduction

In the previous article, we understood the definition of Fibonacci and how the Fibonacci levels are derived. Now we shall see how to use these levels to enter a trade and formulate a trading strategy around it.

The strategy we are going to discuss can be used not just in the Forex market. It can also be used in different other markets such as Stocks, Commodities, Cryptocurrencies, and ETFs. This is essentially a trend trading strategy that takes advantage of a pullback in a trend. The Fibonacci levels later prove to be critical areas of support and resistance that most traders keep a close watch on. Let’s get started with the strategy.

Step 1: Identify an initial big move. We are going to trade its retracement.

A trend helps the traders to identify the direction of the market and to determine where the market will head further. A big price movement indicates that the market has reversed from its original direction and will possibly continue further in that direction.

In this example, we have identified a big move on the upside, and we shall see how to trade its retracement to join the trend. Let’s use Fibonacci levels to enter the trend at the right time.

 

Step 2: Use the Fibonacci tool and plot the levels on the chart

After placing Fibonacci levels on the chart, we need to wait for a retracement and see where it touches the Fib levels. The most desirable condition is when the price bounces off after touching the 50% or 61.8% fib ratio. These ratios are also known as Golden Fib ratios. In the below chart, we can see the formation of a bullish candle as soon as the Red candle reaching the 61.8% level.

In an uptrend, always make sure to plot the Fib levels from Swing Low to Swing High. Likewise, in a downtrend plot, the Fib levels on the chart from Swing High to Swing Low.

Step 3: Enter only after confirmation

Typically, traders are taught to place their buy orders as soon as the price reaches the 61.8% level. Do not do that. Only place the trades after the appearance of at least a couple of bullish candles. In the below chart, the formation of a green candle at 61.8% gives us an additional confirmation that the trend is going to continue after the retracement. Traders can also confirm this buy signal by using reliable technical indicators. This is how the chart would look at the time of entering the trade.

Step 4: Take-Profit and Stop-Loss placement

It is important to place accurate Stop-Loss and Take-Profit orders to mitigate the risk and maximize profits. In this strategy, stop-loss is placed just below the 61.8% Fib level. If the price breaks this Fib level, the uptrend gets invalidated, and we can expect the beginning of a downtrend.

We can place the take-profit order at the nearest’ high’ of the uptrend and trail the stop-loss until it is triggered. The minimum risk to reward of this trade is 1:1, which is not bad. But since it is a continuation of the trend, we can wait until it makes a new high and take profits there. This will result in a 1:2 risk to reward trade.

Below is how the setup of the final trade looks like.

We can clearly see the price respecting the Fibonacci levels, and the trade here went exactly the way we predicted.

Conclusion

Fibonacci retracements are a part of the trend trading strategy that most traders observe during an uptrend. Traders try to make low-risk entries in the direction of the trend using these Fibonacci levels. It is believed that the price is highly likely to bounce from the Fibonacci levels back in the direction of the initial trend. These Fib levels can also be used on multiple time frames. When this tool is combined with other technical indicators, we can predict the outcome of the trade with a greater degree of accuracy.

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60. Introduction To Fibonacci Trading

Introduction

Introduction

Introduction

We have completed learning most of the basics related to candlesticks and its patters in the previous lessons. In the upcoming articles, let’s upgrade our technical trading skills by learning Fibonacci Trading. This field of study deals with trading the price charts using Fibonacci levels and ratios. In this article, we will briefly talk about what this Fibonacci trading is all about.

Fibonacci levels and ratios were devised by a famous Italian mathematician, ‘Leonardo Fibonacci.’ This Italian number theorist introduced various mathematical concepts that we use in the modern world, such as square roots, math word problems, and number sequencing.

Leonardo Pisano Fibonacci 

Picture Source – Thoughtco

He found out a series of numbers that created ratios. The ratios described the natural proportion of things in the universe. The ratios are derived from the following number series: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144. This number series always starts at 0 and then adding 0+1 to get 1, which is the third number. Then, adding, the second and third numbers to get 2, which is the fourth number and so on.

The Fibonacci ratios are generated by dividing a Fibonacci number to its succeeding Fibonacci number. For instance, both 34 & 55 are Fibonacci numbers, and when we divide 34 with 55, we get 0.618, which is a Fibonacci Ratio. We also call them as Fibonacci Retracements. If we calculate the ratios between two alternative numbers, we get Fibonacci Extensions. For example, when we divide 34 by 89, it will be equal to 0.382, which is a Fibonacci Extension. Below, we have mentioned a few Fibonacci Retracement and Extention values for your reference.

Fibonacci Retracements - 0.236, 0.382, 0.500, 0.618, 0.764 etc.

Fibonacci Extensions - 0, 0.382, 0.618, 1.000, 1.382, 1.618 etc.

Many theories say that once the market makes a big move in one direction, the price will retrace or return partly to the previous Fibonacci retracement levels before resuming in the original direction. Hence traders use Fibonacci retracement points as potential support and resistance levels.

Many traders watch for these levels and place buy and sell orders at these prices to enter or place stops. Traders also use Fibonacci extension levels as profit-taking zones. In order to apply Fibonacci levels on the charts, we need to identify Swing highs and Swing low points, which will be discussed in the upcoming articles.

Fibonacci trading is one of the major branches of Technical Analysis. So it becomes compulsory for every trader to learn what this is all about. In the 21st century, almost all of the brokers provide charting software where we can find Fibonacci tools like indicators and Fibonacci calculators, which makes this aspect of trading very simple and easy.

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