How To Draw Trend Based Fib Extension

Our goal in this article is Fibonacci!

Become prepare for the Ultimate Guide to Fibonacci Trading!

Why Fibs? I realized how often I actually refer to Fibonacci and Fib levels in my articles. Choosing this topic was very easy, to say the least.

I volition provide y'all with a grand and first-class explanation of Fibonacci and Fib trading, so make certain to take notes and grab some extra coffee but in case!

Who is Fibonacci?

Fibonacci was actually named Leonardo Pisano Bigollo. He was an Italian Mathematician and considered "the most talented western mathematician of the Eye Ages." Fibonacci is well known for the Hindu-Arabic numeral system in Europe, which was published in 1202 in his volume Liber Abaci (Book of Adding).

He is likewise known for the Fibonacci number sequence. However not considering he discovered the sequence himself, simply they because were named after him. The numbers were used as an example in the Liber Abaci. The numbers are : 0,i,1,two,3,five,8,13,21,34,55,89,144, etc. The trick is to add the kickoff two numbers, which equals the tertiary (0+one=1), and then continue by calculation the 2nd and 3rd which equals the 4th number (1+1=2), etc.

Now that we have introduced the name to all our fellow traders, let us move on to explicate how to trade with Fibonacci? Having knowledge is one element, only really implementing is a whole other matter. And so nosotros will likewise look at how to merchandise a Fibonacci Trading Strategy and how to trade using Fibonacci retracements. You lot can likewise read almost forex trading money management strategies for improve trading.

What are Fibonacci Sequence Levels?

The Fibonacci sequence numbers are mathematically derived numbers but are easy to calculate. The list of Fib sequence numbers is:

0, i, one, 2, three, v, 8, xiii, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, and continues.

The pull a fast one on is to add together the first two numbers, which equals the third (0+i=1), and so go along past adding the 2nd and 3rd which equals the 4th number (1+1=2), etc. Equally the numbers are added a new number is created. The method stays the aforementioned for higher numbers every bit well such as 89+144 = 233, and and so 144 + 233 = 377.

Interestingly enough, Fibonacci sequence numbers tend to do pretty well as guidance on how far a thrust or impulsive movement can last in a number of pips. This holds true for all currency pairs. Of course, the lower frames will adhere to lower Fib numbers, whereas college time frames to higher Fib sequence levels.

What are the Fibonacci Retracement Levels?

These numbers are calculated by dividing the Fibonacci sequence numbers (mentioned in a higher place).

Here is an example:

8/13 = 0.618…. or 61.viii%.

34/89 = 0.382... or 38.2%.

The exception is the 0.v or 50% marker, which is, in fact, the halfway mark.

Here is the total list of Fibs:

1) The 23.half-dozen% or 0.236 - i.e. xiii/55 = 0.236

2) The 38.ii% or 0.382 - i.e. 13/34 = 0.382

3) The l.0% or 0.500 - half way

4) The 61.eight% or 0.618 - i.eastward. 13/21 = 0.618

5) The 78.half-dozen% or 0.786 - foursquare root of 0.618

6) The 88.vi% or 0.886 - square root of 0.7864

They are a great method when measuring market psychology. Who wouldn't want to get a 50% disbelieve? Picture yourself in front of your favorite retail shop and all of a sudden a person steps out and says: "Everything in hither is 50% discounted!" Guess what that does? It creates a lot of interest. The same holds true in the Forex marketplace: traders are going to utilize that opportunity! Just like shoppers.

Last but not least, the 618 Fib retracement is actress important in Forex trading considering information technology 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 larger quantity is equal to the ratio of the larger quantity to the smaller 1. In math this means ((A+B)/A) = Phi. Just this number is not but of import in Forex trading: the Phi number can be seen in arts and even nature!

What Are Fibonacci Target Levels?

The Fibonacci targets are swell because they provide great exits in a trend. The most important Fibonacci targets are:

• -0.272
• -0.618
• -1.618

However, at that place are other Fib targets that are worth having on the nautical chart:

• -0.180
• -0.786
• -i.000
• -2.000
• -2.618
• -4.236

You tin add these targets by clicking on your Fibonacci properties and so calculation these levels to your Fibonacci retracement tool. Brand sure to add the minus sign, though.

When Do You Use Fibonacci Retracement?

Fibonacci levels are valuable in identifying potential support and resistance levels. When using the tool for trading purposes, then the key is to know when to use the Fibonacci tools: the best environment is trending markets. Fibonacci levels work best in trend markets and do not provide any benefit in ranges.

Plainly and simple, the Fibs have no value in zones where the price is consolidating, correcting, ranging and moving sideways. Why? Traders tend to ignore these levels because currencies act and react to unlike tools and items such every bit tops and bottoms.

Here is an case of consolidation:

If the currency, however, is indeed trending or if the Fib is used on higher fourth dimension frames, and then the tool is a not bad asset because information technology gives y'all a bully indication of where the market will turn dorsum in the management of the trend .

How Do I Use Fibonacci Retracement?

Traders can employ the Fibs for their trading decisions and choose their entry, target (see beneath) and stop loss placement solely based on this tool. Only traders are besides able to utilize the Fibonacci numbers in a dissimilar way.

Fibonacci levels tin also filter out merchandise ideas. No trader would want to go long or short in forepart of a big Fib level and their trade idea would exist invalidated due to this state of affairs.

Fibs are likewise exist used every bit a trigger instead of an exact entry. A trader could take a sure Fib level in mind which they would like to merchandise. A direct entry club at the Fib level would exist i manner of tackling this setup. Only traders can as well view the Fib level as a trigger and enter a trade afterwards on afterward other conditions have been met such as a candlestick pattern, break out or whatever other confirmation that price is respecting the Fib level. We likewise have training on Candlesticks Patterns and How to use them.

How to Place the Fibonacci Retracement Correctly

It is crucial to place the Fib retracement tool on the right top and bottom. I myself am a trader that places the tool from left to correct – although at that place are traders who do the reverse it and place it from right to left. For me placing the tool from past to current price (left to correct) is better than from current price to the past, and we volition employ that in future examples.

In any case, Forex traders want to place the Fib in the right identify, which is from the bottom to top in an uptrend and from top to bottom in a downtrend. This move from tiptop to bottom tin can besides exist called "swing high swing low". Placing the Fib correctly is a vital step - otherwise, you could be fibbing the incorrect leg of a move and become stopped out for a loss.

A few key items to be aware of:

1. Utilise tops and bottoms on your time frame - use natural tops and bottoms for swings and legs to place your fib;
2. Utilise Fractals -  Fractals will help you with identifying tops and bottoms;
3. Use Elliott Wave -  make certain you are fibbing a wave i, a moving ridge three, a moving ridge extension (sub-waves of a wave), a wave A or an entire 5 moving ridge sequence, otherwise the Fib might fail (when using it every bit a tool for entries);
4. Use the Awesome Oscillator - check when the nil line has been crossed and wait for a retrace back to that zero line. You now have confirmation that the movement is 1 leg or swing loftier swing depression.

How Do You Know It'southward Time to Place Fib?

It is important to realize that a new Fib is preferably non placed on a new swing high swing low unless the target has been hit (see Fibonacci targets for more details on the levels).

The reason why is elementary: but when the targets take been hit is the currency pair, in fact, confirming a trending style. If the currency bounces in betwixt the top and lesser and so, in fact, the currency is in a range and Forex traders simply desire to place a new Fib once the trend is back in force.

The virtually important target to hit is the -0.618 or the -0.272 in the instance of the 78.6% and 88.6% Fibonacci retracement levels.

Using Fibs in Confluence with Other Tools

Finding confluence is key. With confluence, I mean finding multiple reasons for taking a trade.

one) A  Fibonacci retracement and a Fibonacci target at the aforementioned level -

When a Fib target and a Fib retracement are lined up at the aforementioned price, then the likelihood of toll reacting to it has substantially increased.

ii) Price action and important Fib levels -

Waiting for a confirmation of price reaction to a Fib level is a neat method of reducing risking and making certain that the Fib placement you used is right.

3) Fib levels and key levels in the market place (such as day and week support and resistance levels) -

This some other great manner of combining various technical assay tools in the Forex market.

4) Fib levels and trend lines & moving averages -

Terminal simply non to the lowest degree, needless to say, that using moving averages and/or trend lines with Fibs of grade merely as good as well.

Fibonacci in Chart Patterns and Fibonacci Fourth dimension Ratios

To empathise how Fibonacci plays an integral part in nautical chart patterns , I suggest you to read through last week's article which discusses patterns and Fibs in depth .

Fibonacci time ratios explicate how long a swing high swing depression might take in time before the adjacent swing high swing low starts. It does that by measuring a completed swing high swing low and then placing 38.2%, 61.8%, 100% of the fourth dimension length frontward. The side by side swing loftier swing low has a higher take chances of finishing at these Fib levels.

Different Time Frames for the Fibonacci Sequence

The Fibonacci retracement tool has more importance and significance when used on a higher time frame. Withal, the levels tend to work well on all fourth dimension frames in fact.

Traders tin can use the tool on multiple time frames at the same time. In one instance the Fib might act every bit a potential turning spot for a tendency continuation on a higher time frame, such as the daily nautical chart. Whereas on a smaller fourth dimension frame, a trader could employ a Fib enter on a pullback. The first one is used every bit a potential trigger and the 2nd Fib as the actual entry.

What Fibonacci Retracement Levels Do You Utilise?

My regular blog readers already know that I LOVE Fib levels. Why?

They are a great method when measuring market psychology. Who wouldn't want to get a 50% discount?

I mean picture y'all in front of your favorite retail outlet and all of a sudden a person steps out and says: "hey everything in hither is 50% discounted!" Approximate what that does with your psychology?

The same holds true in the Forex market. Let'south assume at that place is a trend taking place. The trend stalls and retraces back 50% of the way. Traders are going to use that opportunity! Only like shoppers.

The KEY is trending markets.

Fibonacci levels work all-time in trend markets.

I echo ...trends!

In consolidations, corrections, ranges, and sideways moves, the Fibs have less value. Specially on smaller fourth dimension frames. The reason is simply that the traders, the market in general and therefore price activity tend to ignore these levels. In these, the currencies act and react to dissimilar tools and items such as tops and bottoms.

If the currency, notwithstanding, is indeed trending or if the Fib is used on higher time frames, then the tool is a peachy asset because it gives you a great indication of where the marketplace turns back in the direction of the trend.

So what are the levels?

Well, all of yous have heard of the 382, 500 and 618 Fibonacci retracement levels 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 simply the halfway mark.

8/xiii = 0.618…. 34/89 = 0.382.

But there are other Fib levels as well! Here is the total list I apply:

1)  The 236 or 0.236 -  i.e. xiii/55 = 0.236

ii)  The 382 or 0.382  - i.e. thirteen/34 = 0.382

three)  The 500 or 0.500  - halfway

4)  The 618 or 0.618  - i.east. 13/21 = 0.618

5)  The 786 or 0.786  - square root of 0.618

half dozen)  The 886 or 0.886  - square root of 0.786

What Is the Golden Phi?

The 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 larger quantity is equal to the ratio of the larger quantity to the smaller one. In math this means ((A+B)/A) = PHI.

The PHI is equal to 0.618!! That is why the 618 Fib retracement is so important in Forex trading.

BUT, this number is non only of import in Forex trading! The Phi number can be seen in arts and fifty-fifty nature! Wow.

That said, all Fib levels have their importance, and once yous know these bang-up Fib levels, you have completed the kickoff baby step in succeeding with Fibonacci trading. You lot now know how to trade with Fibonacci retracement levels. The fun increases a lot more in the next department!

What Are Golden Targets?

The targets are more important and this section will really dazzle you lot! This is the existent beauty of how to merchandise with Fibs! Then sit tight and postpone that domestic dog walking you might have planned for simply a few more minutes!

Pay good attending… the targets yous want to add to your Fibonacci retracement tool are:

-0.272

-0.618

These are Amazing targets. The market place truly respects these levels.

With these targets at present your Forex toolbox, you will never ever take to doubt one single second in your life where to take profits?!?!

I tin requite y'all tons and tons of examples on the charts. The market keeps repeating itself over and over. These are the levels you desire to keep in listen!!

Other targets which can accept importance are:

• -1.618
• -two.618
• -i.000
• -2.000
• -0.786
• -4.236

You can add together these targets past clicking on your Fibonacci backdrop and so adding these levels to your Fibonacci retracement tool. Oh and make sure to add the minus sign!

The large question from my side:

Are any of those numbers new to you?

And my 2nd question: how frequently exercise you use Fibonacci retracements and Fibonacci targets?

Avoid the Trading Trap

What I mean with this is: be careful with what yous Fib!

Every Forex trader wants to identify the Fib on the correct swing high swing depression!!!

That is vital. Otherwise, you lot could be fibbing the incorrect leg of a motion and go stopped out for a loss!

Finding the correct leg does take time and practice. Simply information technology is well worth the attempt!

If you ever demand whatever assist with placing the right Fib, make sure to add us to your Twitter following list and enquire usa for our opinion. Send us a screenshot and we volition give back our feedback! So brand sure to use that complimentary resource!

A few primal items to be aware of:

a)  Use tops and bottoms on your time frame à use natural tops and bottoms for swings and legs to place your fib;

b)  Use Elliott Wave à always brand certain you are fibbing a moving ridge i, a wave 3, a moving ridge A or an entire 5 moving ridge sequence, otherwise, the Fib might not work all likewise well;

c)  Use the AO à check when the null line has been crossed and wait for a retrace back to that nil line. You now accept confirmation that the move is 1 leg;

d)  Wait for the Fib targets to be hit earlier placing a new Fib. If the currency doesn't hit the target, wait with Fibbing a new leg, because the currency could exist ranging!

Great Trading Strategy

Read here Nathan's bully Fib trading strategy for the long-term charts: "long-term-trading-strategy-for-forex."

Elliot Wave

Fibonacci levels become paw in hand with the Waves. And every Forex trader should know this aureate guideline:

• Wave 2's ordinarily have a deep retracement;

• Wave 4's ordinarily have a shallow retracement.

• A deep retracement is a 500/618/786/886 Fib.

• A shallow retracement is a 236/382/500 Fib.

• A wave B retracement in a fast correction (zigzag) is often 3382/500/618 retrace.
• A moving ridge B retracement in a slow choppy correction is often a 786/886/double top or break of tiptop till i.380.

My Trader's Fob

My number 1 tip for everyone is this: find confluence.

Confluence is key, just like confidence.

With confluence, I mean finding multiple reasons for taking a merchandise.

1. That could be for instance a Fibonacci retracement and a Fibonacci target at the aforementioned level. When a Fib target and a Fib retracement line upwardly at the same price, then the likelihood of price reacting to information technology has substantially increased.

two. Some other method for confluence is using price activity at important Fib levels. Waiting for a confirmation of toll reaction to a Fib level is a great method of reducing risking and making certain that the Fib placement you used is correct.

three. Using the Fib tools with cardinal levels in the marketplace such as solar day and week support and resistance levels is definitely a wise thought. This another bang-up way of combining various technical analysis tools in the Forex market place.

iv. Last but not to the lowest degree, needless to say, that using moving averages and/or trend lines with Fibs of course just as skilful as well!

In the next section, we will teach you how to prepare breakout and Fibonacci forex trades.

How To Setup Breakout & Fibonacci Forex Trades

At one time, the AUDUSD downtrend offered an interesting chart to search for short setups. In fact, the cost had already approached the 38.2 retracement level, which could take easily go a turning spot for downtrend continuation.

Looking at the 4-hour price action, information technology becomes articulate that several candlesticks were showing struggle at the 38.2 Fibonacci retracement level but bullish engulfing twins could take annulled the bearish signals.

I, therefore, kept a close eye on the upcoming 4-hr candles looking to run into if the cost showed renewed bearish signals or will it continue retracing higher.

In both cases, I am specifically looked for shorts only because of the downtrend (run into blue trend line). Here are the two surly scenarios I am counting with:

• A intermission of the iv-hour candle depression (green circle) for a break out merchandise to lower levels (orange arrow);

• A bounce at the Fibonacci confluence of Fib retracement and Fib target:

• The 50% Fib retracement and the -27.2 Fib target (reddish circle);

• The 61.8% Fib retracement and the -61.8 Fib target (dark red circle).

Chart Patterns

In both scenarios, it is useful to await for a candlestick pattern to confirm that the price is bouncing at the resistance spot or pushing through the support level. This helpful tactic has a high rate of ensuring a decent entry at the right time.

The same upside movement could also occur on the NZDUSD. The Kiwi was in a big downtrend as well simply recent choppiness 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 upside momentum (greenish arrow), the break of the downtrend line (blueish) and the double lesser (purple circle) at the 61.eight Fibonacci retracement level (light blue), the price could be fix for a bullish breakout (bluish arrows) above the resistance line (cerise).

I was interested in taking a long upon the break of resistance (aft candlestick confirmation) and/or taking a short at the Fibonacci targets. There are two valid options for catching the bullish counter-trend breakout setup:

• One is to look for a daily candle pushing through the tendency line;
• The other is to monitor the same bullish breakout merely on a lower time frame such as the 4-60 minutes nautical chart.

The reward of the H4, in this case, is the potential for an earlier entry and hence more infinite to targets too.

When I zoom into the 4-hour chart, I am able to see both a balderdash flag and contracting triangle type of forex chart pattern. The pause below support and the suspension above resistance would indicate the interruption of the contracting triangle. A break of both the resistance and support levels will be the trigger I am looking for a merchandise setup.

As well, in this instance, a potent candle is warranted: close near the low or high, sizeable candle and the majority of candle outside of trend line.

How Do You Trade Using Fibonacci Trend Line Strategy: v Steps

Now that we sympathize the basics of Fibonacci trading, let's cover using Fibonacci for a trend line strategy. Hither's a simple Fibonacci Retracement Trading Strategy that uses this trading tool along with trend lines to find authentic trading entries for peachy profits.

At that place are multiple ways to trade using the Fibonacci Retracement Tool, but I have constitute that one of the best ways to trade the Fibonacci is by using it with trend lines. We besides have preparation on Tendency Line Drawing with Fractals.

The Fibonacci Retracement tool was adult by Leonardo Pisano who was born around 1175 Advertising in Italy. Pisano was known to be "1 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 past traders at present for many years!

With this Fibonacci trading strategy, you lot will learn everything you need to know to outset trading with the Fibonacci Retracement tool. You're going to detect out the Fibonacci significant, Fibonacci algorithm, Fibonacci biography, the Fibonacci formula for market trading, Fibonacci series algorithm, the Fibonacci sequence in nature, along with many other useful facts about this great tool!

Below is a flick of the different ratios that Leonardo created. Nosotros will get into item later on as to which of these lines we will utilize for our trading strategy.

Your charting software should come standard with these ratios, withal, you are the one that puts them on your chart. Many traders use this tool which is why it is important to have a trading strategy that incorporates this. You are going to need to know where to apply these fibs. You will need to place them on the swing high/swing low.

A Swing High is a candlestick with at to the lowest degree ii lower highs on both the left and correct of itself.

A Swing Low is a candlestick with at least two higher lows on both the left and right of itself.

If you lot are unsure of what that means let's take at a chart to see what this looks like:

So here is what it would look like then on your chart with the Fibonacci Retracement:

Here'southward a quick way to remember this concept. If it'south an uptrend, you want to start with the swing low and drag your Fibonacci level all the style up to the swing high. If it'southward a downtrend, you beginning with the swing high and elevate your cursor all the way down to the swing low. You tin also read the strategy on how to use currency strength for trading success.

Uncomplicated enough. Let's go ahead and look at all we will need with this trading strategy.

Trading Tools for Fibonacci Trend Line Trading Strategy

1. Fibonacci Retracement
2. Trend lines

This trading strategy tin be used with any Market (Forex, Stocks, Options, Futures).

It tin can also be used on any time frame. This is a trend trading strategy that will take advantage of the retracement of the tendency.

Forex traders identify the Fibonacci retracement levels as areas of support and resistance. Because of this, these levels are watched by many traders which is why this strategy could be a difference-maker to your trading success.

Since we know some data about the Fibonacci Retracement permit's look at the rules of the Fibonacci Trend Line Strategy.

Fibonacci Trend Line Trading Rules

Rule #1 - Detect a Trending currency Pair

This is unproblematic enough. We need to brand sure it'due south either an uptrend or a downtrend.

In the example, we will exist using today this will exist an uptrend. We will be looking for a retracement in the tendency and then brand an entry based on our rules.

Dominion #2 - Draw a Tendency Line

Since you lot already identified that it is in fact a trend by looking at your chart, now you lot need to draw your trend line

Draw this on the back up and resistance levels every bit the trend is going up or down.

Once yous describe this trend line you lot are good to motion on to the adjacent step.

Tendency lines are a fundamental component of trading and I always recommend using them when you tin.

Rule #3 - Draw Fibonacci From Swing low to swing Loftier

At present yous can get your Fibonacci Retracement tool out and identify information technology at the swing low to the swing high.

Think this is an uptrend so we started at the swing low 100% and placed the second 0% level at the swing high.

Dominion #4 - Look for the Toll Level to Hit Trend Line

So far we found a trending currency pair, drew a tendency line to validate this, and placed our Fibonacci at the swing low and swing high.

This dominion is the critical pace to the strategy and so you need to pay close attending.

Because we need the toll moves to striking our trend line, stall, and go back in the direction of the trend.

If it breaks the tendency line and keeps going and blows past the 50%, 61.8%, 78.half-dozen%, then the tendency is obviously cleaved and you need to look elsewhere because a trade with this strategy would be invalidated at that fourth dimension.

With that being said let's wait at our chart and see what happened.

Great, it hit the trend line so why can't we just get ahead and BUY at present since information technology is an uptrend?

Well if you lot asked that, good question.

As I said, the market tends to follow these lines, just sometimes it will fake traders out and they will end up losing a lot of money when it breaks the tendency.

This happens every single 24-hour interval, which is why it is critical to have a strategy that will help you lot know if this intermission may occur.

And we exercise non want any of that to happen to you, so allow's check out the criteria to enter to aid the states brand a safe entry.

Rule #5 - Price Must Hit Tendency Line in Between 38.ii% and 61.viii% Lines (Fibonacci Gilded Ratio)

Before I start to explain, wait at the chart to see what this exactly means:

The price retraced all the way back and tested the 38.two mark for quite a while earlier hitting the trend line and continuing to become to the upside.

Once the price hitting the trend line that we drew, we saw that information technology was in between 38.2-61.viii lines, and then our merchandise was 1 step closer to beingness triggered.

Why does information technology have to be in-between these lines for this strategy?

Nosotros desire to capitalize on the large retracements. And the 38.two, 50, 61.8 lines accept all been proven to be the best retracement lines to employ with the Fibonacci.

Once yous 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 brand the trade?

In a Purchase-In order to make your entry, you will wait for the cost to close in a higher place either the 38.2% or l% line.

In a SELL-In order to make your entry, yous will wait for the price to close beneath either the 38.ii% or 50% line.

Allow's cheque out the charts to analyze this:

Refer back to this motion picture when you use this strategy. This shows u.s.a. what our charts volition await like earlier we make a trade.

*Notation: If the Price hit our tendency line in betwixt the 50% line and the 61.8% fib line, and then we would wait for a candle to close above the l% line to enter the trade.

The simply reason to await for a candle to close above the 38.iii% fib line is considering it is in betwixt the 38.two%-50% lines for this example.

This procedure should not take very long, equally our trend should continue upward because of the previous back up level with the trend line.

In the above example, information technology illustrates these rules when the trend line meets the price level in these two zones.

*Note: If the price breaks beneath the 61.viii% fib level in the example, so you will besides demand to wait for a candle to shut in a higher place the 50% fib level.

The reason y'all always wait is that you exercise not want to get caught in a broken trend and stop up getting stopped out.

Rule #7 Stop Loss Placement

Your finish loss can vary based on what your charts are showing y'all. Look in the past for prior resistance or support.

In the example trade, the stop was placed in betwixt the l% and 61.8% fib line. For this merchandise, it simply fabricated sense considering if it would accept cleaved the fifty% fib line, then the uptrend would have been invalidated. We want to get out of that Buy trade as quickly as possible.

It is ever helpful to look in the by to determine a stop loss.

Fibonacci Retracement Channel Trading Strategy

Before diving into the specifics, let'due south expect at what tools yous demand for the job for the Fibonacci Channel Trading Strategy:

Luckily, you merely need one tool: the Fibonacci Aqueduct Indicator: This indicator may look dissimilar for you lot depending on what Platform y'all are using (Tradingview, MT4, Tradestation, Ninjatrader). They all come standard on your platform. This is like to the Fibonacci Retracement tool, only yous tin turn the FIB levels to the upside or to the downside.

Similar this:

This will allow y'all to brand perfectly straight parallel lines on the support and resistance points on the uptrend or downtrend. Bank check out the "What Goes on at Support and Resistance" areas if you have no prior noesis as to what this is.

At present allow'southward jump into the steps of the Fibonacci Channel Trading Strategy.

Our Fibonacci Aqueduct Tool

Larn More about it here!!

Fibonacci Channel Trading Steps

Step #1 Find a Potent Downwardly Trend/ Uptrend that is Forming

This pace is disquisitional to become right. You need to find a strong current uptrend at this point. More frequently than not you volition encounter this occur on a trend reversal. Not all the fourth dimension, only a expert portion of it. Have a wait:

We saw here a nice uptrend before information technology broke the line of support and headed to the downside. At this point you need to continue to wait if the toll will "bounce" off of a certain level and head back to the upside.

Note** Our Fibonacci tool is non in play yet. At this point, nosotros are waiting for the toll action to caput dorsum to the upside hit a  "resistance" level and so heading dorsum to the downside forming a "Channel"

Pace #2  In a Down Trend, wait for cost action to consolidate and head dorsum to the upside.

Hither is what information technology looks like:

Again, there is naught here nosotros are interested in trading. The cost action needs to caput back to the upside, consolidate, then nosotros are ready for business organisation for a sell entry.

Step #3 Look for Toll Action to "Hit a Ceiling"

Here is what this step volition expect like:

Y'all can run across in the nautical chart above that I labelled each step of the Fibonacci channel trading strategy. Each step is colored. So at this indicate here is what has happened. Price activity broke the main uptrend and then cause a long surly trend (Pace #one) Then, after consolidation, the cost action went dorsum to the upside (step #2) This uptrend continued for quite a while before finally consolidating again (step #3).

Step #4: Apply Fibonacci Aqueduct Indicator

I will walk you lot through where to place this. You already did about of the piece of work already following Steps i-3, so this step should be very uncomplicated.

Place the Fibonacci Channel Indicator on consolidation #ane and Consolidation #2 in the direction of the channel.

Like this:

In one case y'all practise this, congrats! It's now time to search for a trade....

Later on it shows you lot one more matter to ostend that this is indeed a aqueduct.

Pace #5: Wait for the Price action to Push Down and Pull Back. (Brand Entry Later on Pull-Dorsum)

Here is what this looks like:

Bully! Practise you see that on the pullback it striking our channel line? That is exactly what you want to run into!

Here are all the steps so far:

Take a minute and study the picture higher up. There is a lot to assimilate at that place!

These are the chief 5 steps it takes to make a SELL entry based on this strategy. Simply follow each pace by their color and you got your showtime entry!

Sell Entry #1 and Entry #2

So you lot already know where to enter the first trade.

Correct here:

Now...

You want to printing your winners with this strategy so when the price action hits the 50% marker of the Fibonacci Channel indicator you make a second entry!

So at this betoken, you accept ii trades on, both in turn a profit.

Take Profit/Stop Loss

When the price activity hits the 100% Fibonacci channel line you drew you will close both trades immediately, no exception!

This is the other support level. When the toll hits this level in that location any many things that could happen (Mostly bad)

You see, a lot of buyers know this level, then they have BUY entry orders sitting at the 100% line of that channel. One time price activeness hits that level it's going to trigger all of those buy entries (along with many sellers getting out) and this is what'southward going to happen most likely:

Information technology's only traders making trading decisions!

Y'all want to use a trailing end loss. So as the price moves downwardly you will exist moving yous stop loss appropriately. There are advantages and disadvantages to using a abaft cease. Our team tested a few dissimilar methods with this strategy and agreed that a trailing finish loss is the style to get with the Fibonacci Channel Trading Strategy.

Here is what I would expect similar during the trade.

In one case the Toll actions touch the l% Fib line and we added a second entry, get ahead and motility your stop loss to your starting time entry at the 38% Fib Line. This will lock in some turn a profit in case the toll action decides to turn on you and head to the upside!

Once the Toll activeness touches the 78% Fib line motion both stop losses to the fifty% Fibonacci line. This will lock in profit for the offset trade and you will interruption fifty-fifty on the second merchandise! You nevertheless win either style.

Take a look:

Like I said earlier, you exit both trades immediately when the 100% fib. line is touched!

Notation** The to a higher place was an example of a sell merchandise using the Fibonacci Channel Strategy. Use the verbal same rules (only opposite) for a BUY entry.

Below is a BUY trade example using the Fibonacci Channel Strategy:

Conclusion- The Complete Guide to Fibonacci Trading

Now that you know all about Fibonacci Retracement levels and their applications for different trading strategies, don't be agape to put them to utilize, and tell us what you call back of the article above! Have you lot traded these pairs in the past?

Practice you currently trade them? What is YOUR reason for perhaps not trading them? Allow united states of america know down below in the comments section! If y'all enjoyed this Free Educational Article, and so I would appreciate information technology if you would share it with others! Thank you!

Have a great weekend! And wish yous good trading next week! We volition have a look at what kind of event NFP had on the weekly price activeness on Monday.

Thanks for reading!

Please get out a comment below if yous have whatever questions about Fibonacci trading strategies.

TradingStrategyGuides

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