Jump to content

Fibonacci Trading Strategy

Recommended Posts

I came across this Fib trading strategy a short while ago and have been playing around with it for a few days and must admit it is very interesting. It's presented in a 45 min video that is interesting in itself for some of the concepts on Fib and Strategies in general.

At the start of the vid he says that the strategy is in the second half and to skip forward if you want but don't because there are points of interest throughout and he doesn't spend much time explaining Fib anyway.

The key is the systematic approach to quite a simple plan and the entry signal is a sign that larger traders are looking at the same thing. I've not properly backtested it but playing around it looks quite sound. There are many times when the criteria aren't met which is fine because you're not entering those anyway. In the pics below I found 1 day that had 5 entries all of which came off though admittedly some entries were triggered while still in the previous trade and the last entry of the day carried over night and nearly stopped out and actually just missed the target the next day by a couple of pip but the risk reward ratio is set at 1:3 so hey.

The entry signal bars are boxed in white, the chart is the 5 min EURUSD but the system looks like it may work on any time frame. I took the signal as a wick or body closed on or very close to the 50% and was followed by an opposite colour bar. Entry was on that bar close.


Link to comment

A few have may have seen the video explaining this strategy by now so I shall say why this strategy impressed me and I must say not many strategies found on the web do but this one is different, here's why.

Firstly it's not really a Fibonacci trading strategy. It doesn't rely on Fibonacci - it relies on other traders relying on Fibonacci. 

But that's not quite true either, it uses the 50% level and 50 isn't even a Fib number.
What it's really doing is looking hard at the 50% retracement level of a strong trend leg. A perfectly reasonable place to look for a pullback to end. The strategy is just using the Fib tool to mark it on the chart.

The next important point being the signs used for a signal. The first sign is the price drop being halted at that particular level (50% retracement). That can only mean that traders who are capable of moving the market had placed orders precisely at that point. They got their Fib tool out and placed speculative limit orders on the 50% retracement level. 

In some cases that will work, there will be enough buying to halt the price drop at 50%. If you are a big enough trader to move the market and you have just helped stop the move down then you will start adding to the long position. If that works the market will turn and that will give the strategy's second sign, the next candle being the opposite colour (entry on this bar close).

So what the strategy is really about is looking for specific signs that big traders are using the 50% retracement level to re-enter the market expecting trend continuation, identifying the point when big traders are entering the market should be the main goal of every retail trader.

Often the 50% won't be used or the traders aren't strong enough to halt the market or not strong enough to reverse it, fine - you don't get a signal so you don't enter. And of course even with all the signs the trade may not work out but I like the principle behind the strategy and I like the idea of not trying to look everywhere on a chart but in one specific place only, and just let all the others go. So you are looking for one thing on many charts rather than many things on one chart. 

Worth a forward test run on the simulator when I can find the time.

Link to comment

Would have been more useful if I had included a more detailed example in my first post, I've taken this one from Friday EURUSD 5 min, interesting to note that after the initial interaction at the 50% retracement level during the afternoon the 50 was repeatedly attack and held through the rest of the day into the close.


Link to comment

I don't follow the 5min chart just the daily but I thought I would give it a go on EUR/JPY. After dropping, there was a retrace back to the Fib 50 on 7-11 followed by an opposite candle on 8-11 which I then shorted. So far so good, but it did go against one of the indicators I like to use so I was a bit worried. I wonder if the EUR/JPY will go down as far as 1.5 times as the strategy suggested because that is quite a drop. 

Link to comment

GBP/USD on daily time frame started impulse wave down from 12th Oct  and finished on 30th Oct. FIB retrace up to 76% on 7th Nov with big selling candle on following day. All the sellers were in at this point. If you shorted here, where is the first possible sticking price on the way down?

Link to comment

Hi @Nelsy-Boy, the impulse move just means the 1st leg of a strong move in either direction where you would draw the first line of the fib 0 - 100 and the potential retrace levels are calculated from that.

BTW I think you are probably right in that the original target may be a bit of a stretch and I would cut it back and see how that went in testing first, especially on the larger time frames, will be interesting to see how it goes on the daily.

Link to comment
Guest Zenforo

Thank you for the video. I have seen it and installed it. I am still a newbie using a demo account. So, I am learning from the video and I think I am making progress with the drawings. I think I will post a screenshot of how I did mine. I am yet to go live, but I will soon. 

Link to comment

This is interesting and maybe my style of trading. I am trying it out on demo. Some observations and questions.

  1. The legs are subjective. Do you include minor retracements with the general swing? I guess it's all arbitrary, the larger the reference swing, the longer the position holding time will be. If you do fibs on a small swing, then the trading window is shorter, stops are closer and less reliable.
  2. If it already bounced at the 38.2% mark, do I discount the setup already? Or do I still wait if the bounce fizzles out (not breaking the Fib high/low) and goes further down to 50%?
  3. You seem to be betting on both sides of the market going long and short with no opinion on whether it's a continuation of a long uptrend, a reversal, or a short pause. You just take either long or short positions whenever a 50% bounce happens at whatever level. Is this right? Wouldn't it be better to bet just on the side of the longer trend? At the back of my mind, I kept thinking if I was actually betting against the market, hoping for a reversal instead of riding a continuation. Does anyone supplement this system with another long-term indicator?
Link to comment

Hi @jomni,  you are right in that all technical drawing is subjective. My own thoughts are that the impulse leg should stand out from the prior price action on the chart and the size of which will depend on the time frame of the chart you are using. So even if the larger time frame charts say the impulse leg is small and against larger time frame trend it will still be relevant on the smaller time frame and you will just be expecting the duration of the trade to be shorter as the target is set in advance and is a ratio based on the length of the impulse leg.

With regards to point number 2, I would not be concerned about previous bounces at the lower fib levels and in fact consider that to be supportive, also in back testing I found price could still drop lower than 50% before recommencing in the direction of the impulse leg.

The system is basically a way of entering on the first pullback of a potential new trend phase on the time frame of the chart you are watching.

As always testing over a reasonable number of trades will hone skills and determine the longer term validity of the system.

Link to comment

I did end up with a long and a short for the same currency. I guess this acted as a hedge for sideways movement. If the trend clearly happens, one side gets stopped out and the other is making money. 🙃

Well, so far I have lost most of my trades. Is the target too high? There's no case where I achieved it. 😭

Link to comment

Hi @jomni, that's interesting, what market and time frame are you using? The target may be too high, the system says 3 x the 0 to 50% value so check to see if 2 x might be a better target.

You may get new entries before the current trade is closed but they shouldn't really be in the opposite direction. A new impulse leg should be outstanding on the chart, a new impulse leg in the opposite direction would have to be really outstanding or it wouldn't be outstanding if you get my meaning.

As discussed previously fibs can be a bit subjective and there is a bit of an art to it gained through practice. The chart below is the 4 hour eurusd. In the first example the impulse leg needed to be redrawn 3 times because the pullbacks just petered out. In the second example there was initially a short leg down but not outstanding so waited til was able to draw a longer leg. The 2 50% entry levels are marked with a down arrow.



Link to comment

Hi @jomni,  the system (if it works) shouldn't be time frame dependent, I just used the 4 hour because it happened to be open in front of me. Really just wanted to show that the drawing of the impulse leg often needs regular reappraisal (as does any technical drawing on a chart), and that there will be continuous attempts to turn price that fail and that we are looking for a meaningful retracement off an outstanding (preferably out of a period of consolidation) move in either direction that may be signalling the start of a new trend . 

I usually look for a retracement to end between 40 and 60% as having the most likelihood of success, what the system is saying is to look for big players who are acting at the 50% and just go with then with a large stop (back at the start of the impulse leg). 

Link to comment


This topic is now archived and is closed to further replies.

  • General Statistics

    • Total Topics
    • Total Posts
    • Total Members
    • Most Online
      10/06/21 10:53

    Newest Member
    Joined 01/12/23 09:35
  • Posts

    • FTSE 100, DAX 40 and S&P 500 remain bid as inflation slows Outlook on FTSE 100, DAX 40 and S&P 500 following a strong November. Source: Bloomberg  Axel Rudolph FSTA | Senior Financial Analyst, London | Publication date: Friday 01 December 2023 12:32 FTSE 100 ends month in positive territory The FTSE 100 slid to 7,383 on Thursday before reversing to the upside as inflation continues to weaken in the eurozone. The 55-day simple moving average (SMA) at 7,494 capped and is doing so once more on Friday morning. Once overcome, the 17 November high at 7,516 will be in focus, together with the 7,535 November high. Minor support is found at the 21 November low at 7,446. Source: ProRealTime DAX 40 continues to surge ahead as eurozone inflations weakens The DAX 40 continues to surge ahead as eurozone inflation came in weaker-than-expected on Thursday with the July peak at 16,532 being in sight. Minor resistance on the way up can be spotted at the 16,421 31 July low. Support below Friday’s intraday low at 16,236 is seen at Thursday’s 16,165 low. More significant support can be found between the August and September highs at 16,044 to 15,992. Source: ProRealTime S&P 500 sees best November since 1980 The sharp November rally in the S&P 500 has lost upside momentum but the index nonetheless continues to trade in four-month highs as the Fed’s preferred PCE inflation gauge came in as expected at 3% year-on-year in October. November was not only the best performing month for the S&P 500 this year but also the strongest November since 1980. Resistance is found at the November peak at 4,587, followed by the July peak at 4,607. While this week’s lows at 4,539 to 4,537 underpin, the short-term uptrend remains intact. Slightly further down sits potential support at the 4,516 mid-September high. Source: ProRealTime
    • If you want to succeed in this game you have to know and understand the rules - 99.9% of people don't, but of those a few % slip into the trading success net It's not my Intention to show you how to trade or make money - I'd be loathed to help some greedy wealthy person increase their wealth, through a easy trading method, but I'm happy to show you the TIME side of the markets, because I know hardly anyone will take note or use and it satisfies my "I tried to help them" lifes reflections etc Above I showed you Gann Square of 9 showing MONTHS on the SP500 and that lots of those turns on a monthly basis came out on KEY points on the Sq9 - namely the UP, DOWN, HORIZONTAL and DIAGONAL lines/points If you quickly study the chart below, you will see lots of times the EURUSD hit some of those points nicely, look at month 218 & 257 as examples - now scroll up and look where those 2 numbers are located on the Sq9 They are smack bang on key positions of that Sq9 chart - All I want to show you is how freely traded markets are somehow landing on pre-built number sequences over and over - not every one is a direct hit, but I'm sure you'd agree in the SP500 example above AND this EURUSD below its a canny coincidence! So, lets look at the EURUSD, because the Sq9 above resulted in too many options and you'd struggle to formulate a easy to use strategy from Gann used lots of differing Squares to calculate from, he used a Square of 12 (12x12 = 144) and we'll look at that for the EURUSD MONTHLY chart (Note ALL Gann's Squares where derived from the the pyramid's!)   We'll keep it simple and just use STATIC monthly cycles, here's a 12 month cycle (remember we are using Ganns Square 12 to base this all from) As you can see its quite effective, I've highlighted the 36 month cycle with THICK lines, because its resonating with the market pretty **** well and as you can see the Square of 144 is working really well with the EURUSD (All markets will work well with differing Squares, so its not a one size fits all thing) To save a huge amount of explaining, the square of 144 has principles within it that resonate with the sacred geometric solid of a PENTAGON and we know from mathematics, that a pentagram fits into a pentagon in the form of all its sides UNFOLDED, when these open arms/points hit the edge of a circle it creates a set point on that circle and you have 5 points of 72 degrees around that circle (Remember Pythagoras, he had a secret hidden order where the Pentagram was the symbol of the order! and he was a very very very clever person)  So IF, 72 (half of the Square of 12) is important then, harmonically related numbers to that 72 will also be Important, as in the chart above we've seen that 36 was In the chart below I've tided up the chart a little and added a 54 month cycle because 54 is an Internal angle of the pentagram, its also a Hurst cycle too - I also for visuals show basic Fibonacci cycles of 38/62/138/162 MONTHS  But as we can see 54 & 36 months  are definitely causing the EURUSD to sing to its tune - Remember these are STATIC cycles, the markets are NOT static, hence why its not perfect and exact Hopefully given you some food for thought - Remember you are VIEWING Time & Price action on a 2 Dimensional chart, Price & Time don't move in a 2 Dimensional fashion, Have a Great Christmas and New Year THT
    • Gold price and natural gas price consolidate, but WTI comes under fresh pressure It is a mixed start to the month for commodity prices; gold and natural gas are relatively quiet, while oil prices have fallen after an OPEC production cut failed to meet expectations. Source: Bloomberg  Chris Beauchamp | Chief Market Analyst, London | Publication date: Friday 01 December 2023 12:22 Gold price rally stalls The price seems to have topped out for now, though a short-term bearish view would likely need a close back below $2000 to suggest another test of rising support. On the upside, the $2060 level remains as the key area to watch in the short-term, along with the $2075/$2080 area that has marked gold’s highs since 2020. Source: ProRealTime WTI falls after OPEC news OPEC’s production cuts were not enough, it seems to deliver a sustained bounce in oil prices. Instead, Thursday saw the price push briefly above the 200-day simple moving average (SMA), before dropping back again. This now means we wait to see if recent support around $72 could be tested, with a move below this creating a lower low. Source: ProRealTime Natural Gas holds above 200-day MA Here the price has managed to stabilise around the 200-day SMA, and a close back above 2900 might suggest a test of recent trendline resistance. If the price can claw its way back above 3000, buyers might emerge once again. Alternately, 2640 and 2540 become the next short-term targets to the downside. Source: ProRealTime
  • Create New...