Forex Trading Using Fibonacci And Elliott Wave

You need to pick a recent swing low or high as your starting point and the indicator will plot out the additional points based on the Fibonacci series. If the price starts trending in our favor, we stay in the market if the alligator is “eating” and its lines are far from each other. When the alligator lines overlap, the alligator falls asleep and we exit our position.

  • The Fibonacci retracement levels are counted using these numbers.
  • By selling the low of the candlestick, we are effectively trading the lower time frame range breakout to the downside.
  • They can be used to determine critical points that cause a price to reverse.

The tool then provides areas where the pullback is likely to stall (later, which level have the highest probability of causing the reversal will be discussed). In this case, the price stalls at the 61.8 level, and then continues moving higher. Some of the Fibonacci trading tools to measure these ratios on-chart are the Fibonacci Retracements and the Fibonacci Fan.

Fibonacci Sequence

Therefore, big investors use Fibonacci tools due to its nature as a price predictor with better accuracy. Moreover, there are a lot of trading strategies with Fibonacci tools and there are many successful traders who often use Fibonacci in their trading strategies. As we discussed earlier, 1.618 is a key number in the Fibonacci sequence called the Golden Ratio. Therefore, the golden ratio is set in the price chart as a Fibonacci extension level of 161.8%.

Fibonacci Forex Trading

Don’t assume that just because a market has retraced 50% that it will react. Like anything else, Fibonacci levels are just one more confluence factor that we can add to our trading toolbox. This isn’t to say that you can’t use Fibonacci levels on the smaller swings, because you can. However for the way we trade the higher time frames it’s best to use the major highs and lows. You will find that, generally speaking, the more accurate Fibonacci levels are found when using a higher time frame such as the daily or weekly chart.

Strategies For Trading Fibonacci Retracements

Because the main aim of the Fibonacci retracement is to signal the most reliable support and resistance levels, you can confirm the signal by drawing a trend line. If the trend line and any of the levels coincide, this point may become the most forceful support or resistance level. If there’s an uptrend and the price breaks above it, that’s a signal to buy.

Fibonacci Forex Trading

Fibonacci also uncovered that every number in the sequence is approximately 38.2% of the Fibonacci number two steps ahead. “Rallies of all sizes do regularly eventually pull back at least to the 38.2%-50% Fibonacci Fibonacci Forex Trading levels,” wrote Adams. If you drew it correctly, the bottom of the trend would be your 0 level and the top of the trend would be your 100 level. Fibonacci Retracement from top to bottom in a downtrend 1.

What Are Fibonacci Retracements And Fibonacci Ratios?

Since so many traders watch these same levels and place buy and sell orders on them to enter trades or place stops, the support and resistance levels tend to become a self-fulfilling prophecy. Now, let’s take a look at some examples of how to apply Fibonacci retracement levels to the currency markets. Fibonacci retracement levels are considered a predictive technical indicator since they attempt to identify where price may be in the future. Almost all traders have a trading style or set of strategies they utilize in order to maximize profit potential and keep their emotions in check. The Fibonacci trading strategy utilizes hard data and if a trader adheres to their strategy, there should be minimal emotional interference. The Phi-Ellipse is a Fibonacci-based technical analysis tool used by traders to identify general market trends.

Fibonacci Forex Trading

A forex pivot point is a level based on the previous day’s price action that indicates where a market is likely to turn. The most common use for Fibonacci levels is the regular retracement strategy. After identifying the ‘A to B’ move, you pay attention to the retracement level C. At some point in every trader’s career, it’s impossible to deemphasize the need for Fibonacci retracement tool in plotting crucial levels in the market. We added extension levels of blue colour to the correction levels in the following 10-minute E-micro Gold futures chart.

How To Implement Fibonacci Analysis In Forex Trading?

What we could do is every time the price bounces from 38.2% or 61.8% a long position could be opened. Stop losses should be placed right under the bottom of the tests. The trade could be held until the price breaks one of the fan levels How to Start Investing in Stocks in bearish direction. After the end of the bullish trend, the price drops and finds support at the 61.8% fib retracement level. The Fibonacci sequence and golden ratio appear frequently in nature, biology, architecture and fine art.

The spiral of Fibonacci is a sequence of numbers that starts from zero. Previously, we mentioned how you can use Fibonacci tools to enter and exit positions, but there are other strategies you can apply to your trading. Although Fibonacci tools are widely used by traders, some limitations should be considered when applying them. We mentioned the most famous levels of the Fibonacci retracement end up with 100%. If you believe the trend will resume, wait for the price to move in the direction of the trend after it rebounds from Fibonacci levels.

It is seen in flower petals, tree branches, human DNA and population growth. The golden ratio and other Fibonacci ratios are also often found in the financial markets​, and they form the foundation of the Fibonacci retracement tool. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.


To answer all those questions related to the nature of a move, its type and interpretation, one will have to use the golden ratio in the process. The golden ratio level is used in corrective waves as well; as a matter of fact, it defines corrective waves. As you’re about to find out in our future articles, corrective waves are all about 61.8% retracement. Just to give you an idea, in a contracting triangle – one of the commonest patterns defined by Elliott – at least three waves need to retrace a minimum of 50% of the previous wave. Such a rule is an internal one, and it defines the overall pattern.

There is even an opportunity for a fifth trade on this chart. One should go long after the bounce from 38.2% shown in the last green circle. This long position could have generated profit equal to 136 pips. This is a facial portrait, which is highly responsive to the Fibonacci ratios. And it would be generally accepted, that this face is considered appealing and beautiful.

In the event that we are looking for a short entry, then waiting for better trade location is the play. As I said, the market tends to follow these lines, but sometimes it will fake traders out and they will end up losing a lot of money when it breaks the trend. If it’s an uptrend, you want Margin trading to start with the swing low and drag your Fibonacci level all the way up to the swing high. If it’s a downtrend, you start with the swing high and drag your cursor all the way down to the swing low. You can also read the strategy on how to use currency strength for trading success.

Fibonacci retracement levels shown on the USD/CAD currency pair. In this case, price retraced approximately 38.2% of a move down before continuing. This two-line indicator can help identify overbought and oversold levels. The strategy looks Currency Risk for key signals from the stochastic indicator when the price touches an important Fibonacci level. The two signals together indicate an opportunity to open a position. Combining Fibonacci retracement lines with the MACD indicator​.

There are also countless Fibonacci tools from spirals, retracements, Fib time zones, Fib speed resistance to extension. We can see stuck long positions in point 3 in the cluster chart and exhaustion of sells in point 4. A great thing about Fib levels is it will ensure you are zoning in on the chart and using small sections to look for trading setups. Support and resistance levels combined with a 38.2% or 61.8% Fib level plus confirming price action is a good technical analysis approach. To cover the trading strategy, I am going to use one of the charts I talked about in my free Forex trading setups I post every single week. We are going to look at the GBPAUD four hour time frame chart which will also teach you how to use price action to determine if there is a high probability trading play in the works.

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