Trading technique based on Fibonacci retracementsThis strategy is a technique of mechanical trading that is based on supports and resistances. The tools used to identify inputs, supports and resistances, outputs and profit-taking points are the following:
This strategy was not designed for a particular currency pair or time frame, so it can be applied in any instrument depending on the trading style, availability of time and level of risk accepted by each trader. In the examples that we are going to present next, the system is used in 15 minute graphics. However according to the author the best results are obtained in the following hours: 3:00 am EST to 12:00 pm EST.
In this case, it may be useful to have knowledge of Japanese candlestick patterns.
Fibonacci ABCD patterns
The retracements are momentary changes in the direction of the trend (bullish or bearish) in which this accumulates momentum to continue with the movement. Reversals are always part of a wave or movement of greater amplitude. Tools such as those based on Fibonacci allow us to determine the extension of the wave and measure the percentage (Fibonacci number) of this wave where recoil is most likely to occur. This in turn allows us to establish potential destinations for these secondary movements.
As we can see in the previous example, the entries and exits in many cases will not be ideal or very precise due to the fact that the market has many options of retreat, and each level of retreat has multiple options in terms of objectives. For this reason, it is important to combine what has been explained up to now on Fibonacci levels with other tools that allow validating points of entry and exit and obtain better results.
Trading system based on the 50% Fibonacci level
Each time there is a significant movement up or down, the 50% level, also called the pivot level, acts as a support when the price closes above it or as a resistance when it closes below it. The only levels that we will use in this case are 0%, 50% and 100%.
-If the market has an upward trend and offers sales signals through candle patterns in the aforementioned points, we apply Fibonacci levels from the highest point to the lowest of the trend and we mark the 50% level as support. If bullish candle patterns appear above this level, the trend is likely to continue. On the other hand, if there is a break down of level 50, it becomes resistance and an opportunity to open a sale position is presented.
-If the market has a bearish trend and offers purchase signals through candle patterns in the aforementioned points, we apply Fibonacci levels from the lowest point to the highest of the trend and we mark the 50% level as resistance. If bearish candle patterns appear below this level, the trend is likely to continue. On the contrary, if there is a break up of level 50, this becomes support and an opportunity to open a purchase position is presented.