Fibonacci Trading Strategy : Beginner's to Advanced Guide
Why Fibonacci Tools?
Fibonacci tools can help traders to determine upcoming support and resistance areas.
Unlike other indicator which works on historical data and mathematical calculation considered to be as Lagging Indicator.
For Example: MACD, Stoch RSI, Bollinger Band etc.
Where as FIBONACCI tools does not come from any formula and historical data, it is predictive in nature and helps to determine potential support and resistance before price gets there.
That’s why Fibonacci tools considered to be leading Oscillator.
I will not go in details how this numbers are shown up, you will get theory part online easily. I think our main objective to learn how to use in our trading.
So, let’s get Started.
MARKET TRENDS
The key to successful trading with Fibonacci is to trade in the direction of the overall trend.
As we all know that there are 3 Market trends.
1.UpTrend.
2.DownTrend.
3.Sideways.
If you ask me what is current BANK NIFTY Trend, I will say at what Time Frame. Why?
Because at 1 Week HIGHER TIME Frame shows Uptrend Market and 1 Hour time frame shown Down Trend market.
You can also use Moving Average (EMA 50), to distinguish trend.
Price> 50 EMA Uptrend and Vice versa.
Once you Identified Trend of Market, we are good to go to next step.
Higher Time Frame:
Lower Time Frame:
RETRACMENT LEVELS
The most popular retracement levels are (23.6%, 38.2%, 50%, 61.8%, 78.6%).
Fibonacci retracement levels are mainly used to determine support and resistance levels.
When market retrace from 23.6 % and 38.2% considered to be as shallow pullback and leads to highly trending market.
Whereas 50%, 61.8% and 78.6 % considered as Deep Pullback and leads to weak trend.
61.8% is very important level because of Golden Ratio and act as psychological number where Profit booking and Reversal is expected.
How to Draw?
Now we all know how to identify Trend and what are the important retracement levels.
Now we will look how to draw Fibonacci Retracement.
“ALT + F” or “Ctrl + K” and type Fib then Select it.
Now select Swing High and Swing Low from the chart.
Note: I am considering SH and SL as a LEG.
You will be having doubt which Leg to Select, answer is simple you can select as many legs and find Confluences between Leg. Which will act as great Support and Resistance.
ENTRY :
Ok, So I will be talking about entry based on your personality.
1. Aggressive Trade
As soon as market touches 61.8 % levels, you enter and I think this is risky way to enter but your reward will be higher.
2. Conservative Trade
You will be waiting for Confirmation and place your order and this ideally best way to enter but reward is lower.
And I will dig deeper into confirmation for the trade.
Confirmation
1. Using Indicator: Moving average Crossover(9EMA,25EMA), MACD, RSI, VWAP etc.
2. Using Candle Stick: Pin Bar, Engulfing etc.
3. Using Support and Resistance: Check for S/R area.
4. Using Trend Line
I Think you get an idea what confirmation you can use, if you are indicator trader use any one of the indicators mentioned above and if you are Price action Trader you can use Trend Line, Support and Resistance, Candle Stick etc.
STOP LOSS
This is a Tricky Part as there are many ways you can use Stop Loss but many of them can Stop Out from volatility.
My Personal Favourite is 1 ATR from retracement level. So, you are considering Average Price movement and slightly Below that level to avoid market Fluctuation.
For Example: 1 ATR Value is 25 and your Stop loss will be 28.
Other Stop Loss Technique:
1. Previous Candle Low.
2. Support/ Resistance.
EXIT:
If you’re Indicator Trader you can use
1. Moving Average Crossover (9EMA, 25 EMA) when 9 crossing 25 you exit.
2. MACD Crossover. etc.
But I will recommend to use 3 PART Method. To Exit from your trade.
We will be using another FIBONACCI Tools which is FIBONACCI EXPANSION.
I will suggest to modify setting and chose only (0, 0.168, 1, 1.618) and don’t ask me why only this number, these are the widely used number for target and works in every time frame.
Using this tool is slightly different then Fibonacci retracement where we have to choose two point (Swing High and Swing Low).
In FIB EXPANSION we need 3 Point (Swing High, Swing Low, Retracement).
It will Project 3 Target (0.168, 1, 1.618).
So, our Strategy will off load 1/3rd of our qty at 0.168 level and trail stop loss to our entry point and wait for 2nd target and off load 2/3rd and last qty at 1.618 Level.
In this way we will booking our profit and waiting for remaining qty to achieve remaining target.
CONCLUSION
Every Strategy is 1/3rd part of Trading Plan which means RISK Management and Psychological plays crucial role to master trading. Which many of the traders neglect and suffer losses if you guys interested in RISK MANAGEMENT and PSYCHLOGICAL Lessons.
Drop Down Comment Below, if you want more Strategy like these and Stock ideas don’t forget to follow me on Trading View.
Peace Out.
Fibonacci tools can help traders to determine upcoming support and resistance areas.
Unlike other indicator which works on historical data and mathematical calculation considered to be as Lagging Indicator.
For Example: MACD, Stoch RSI, Bollinger Band etc.
Where as FIBONACCI tools does not come from any formula and historical data, it is predictive in nature and helps to determine potential support and resistance before price gets there.
That’s why Fibonacci tools considered to be leading Oscillator.
I will not go in details how this numbers are shown up, you will get theory part online easily. I think our main objective to learn how to use in our trading.
So, let’s get Started.
MARKET TRENDS
The key to successful trading with Fibonacci is to trade in the direction of the overall trend.
As we all know that there are 3 Market trends.
1.UpTrend.
2.DownTrend.
3.Sideways.
If you ask me what is current BANK NIFTY Trend, I will say at what Time Frame. Why?
Because at 1 Week HIGHER TIME Frame shows Uptrend Market and 1 Hour time frame shown Down Trend market.
You can also use Moving Average (EMA 50), to distinguish trend.
Price> 50 EMA Uptrend and Vice versa.
Once you Identified Trend of Market, we are good to go to next step.
Higher Time Frame:
RETRACMENT LEVELS
The most popular retracement levels are (23.6%, 38.2%, 50%, 61.8%, 78.6%).
Fibonacci retracement levels are mainly used to determine support and resistance levels.
When market retrace from 23.6 % and 38.2% considered to be as shallow pullback and leads to highly trending market.
Whereas 50%, 61.8% and 78.6 % considered as Deep Pullback and leads to weak trend.
61.8% is very important level because of Golden Ratio and act as psychological number where Profit booking and Reversal is expected.
How to Draw?
Now we all know how to identify Trend and what are the important retracement levels.
Now we will look how to draw Fibonacci Retracement.
“ALT + F” or “Ctrl + K” and type Fib then Select it.
Now select Swing High and Swing Low from the chart.
Note: I am considering SH and SL as a LEG.
You will be having doubt which Leg to Select, answer is simple you can select as many legs and find Confluences between Leg. Which will act as great Support and Resistance.
ENTRY :
Ok, So I will be talking about entry based on your personality.
1. Aggressive Trade
As soon as market touches 61.8 % levels, you enter and I think this is risky way to enter but your reward will be higher.
2. Conservative Trade
You will be waiting for Confirmation and place your order and this ideally best way to enter but reward is lower.
And I will dig deeper into confirmation for the trade.
Confirmation
1. Using Indicator: Moving average Crossover(9EMA,25EMA), MACD, RSI, VWAP etc.
2. Using Candle Stick: Pin Bar, Engulfing etc.
3. Using Support and Resistance: Check for S/R area.
4. Using Trend Line
I Think you get an idea what confirmation you can use, if you are indicator trader use any one of the indicators mentioned above and if you are Price action Trader you can use Trend Line, Support and Resistance, Candle Stick etc.
STOP LOSS
This is a Tricky Part as there are many ways you can use Stop Loss but many of them can Stop Out from volatility.
My Personal Favourite is 1 ATR from retracement level. So, you are considering Average Price movement and slightly Below that level to avoid market Fluctuation.
For Example: 1 ATR Value is 25 and your Stop loss will be 28.
Other Stop Loss Technique:
1. Previous Candle Low.
2. Support/ Resistance.
EXIT:
If you’re Indicator Trader you can use
1. Moving Average Crossover (9EMA, 25 EMA) when 9 crossing 25 you exit.
2. MACD Crossover. etc.
But I will recommend to use 3 PART Method. To Exit from your trade.
We will be using another FIBONACCI Tools which is FIBONACCI EXPANSION.
I will suggest to modify setting and chose only (0, 0.168, 1, 1.618) and don’t ask me why only this number, these are the widely used number for target and works in every time frame.
Using this tool is slightly different then Fibonacci retracement where we have to choose two point (Swing High and Swing Low).
In FIB EXPANSION we need 3 Point (Swing High, Swing Low, Retracement).
It will Project 3 Target (0.168, 1, 1.618).
So, our Strategy will off load 1/3rd of our qty at 0.168 level and trail stop loss to our entry point and wait for 2nd target and off load 2/3rd and last qty at 1.618 Level.
In this way we will booking our profit and waiting for remaining qty to achieve remaining target.
CONCLUSION
Every Strategy is 1/3rd part of Trading Plan which means RISK Management and Psychological plays crucial role to master trading. Which many of the traders neglect and suffer losses if you guys interested in RISK MANAGEMENT and PSYCHLOGICAL Lessons.
Drop Down Comment Below, if you want more Strategy like these and Stock ideas don’t forget to follow me on Trading View.
Peace Out.
