Advanced system #2 (Fibonacci Trading)

Hi Edward,

Is this method only useful in heavily trending markets?

Regards,
George

Hi Hany,

Well, with that entry method at 61.8% Fibs ONLY, we don't wait for a full candle to close above 61.8%, we go immediately on the touch of 61.8 level. This level is the deepest one that can be touched during a retracement in a Healthy trend. But there is also a 75% level - the last one. Touching that level puts in question the health of the trend. Going below 75% - could be either a whipsaw or a potential trend change.

This type of trading where you enter on the touch of 61.8% Fibo level with a stop at 75% is quite risky and more or less belongs to the category of guess games. But, since we set a tight stop the risks are worth taking. The only requirement here is to not be afraid to lose and also trade small lots.

Regarding the pictures, we have to choose the real top and bottom in the swing high and low. Therefore, setup on pic1 is correct, pic2 - wrong.

Best regards,
Edward

Hi Hany,

That's why I said "otherwise" :). The way it currently is of course no Sell orders on Candle #6 should be open.

And that's right. We should focus in this case on the red Fibo and Sell below 25.0 and be prepare to exit if a whole candle closes outside 75.0 red Fibo.

Best regards,
Edward.

Hi Hany,

I like to see a Stop loss below Fibonacci 0% line, but at times, when this line is quite far away and I have recently opened a trade and haven't made profits yet, I opt for an alternative which is roughly 100 pips stop.

If you have a complete wave with 200 pips, you can definitely trade it. I think by "no swing just wave" you mean a complete up and down move, but without a highest high/lowest low as a result of two candles having same high/low values at top/bottom. Is that right or did you mean something else?

Let's now return to your screenshot to find out about pullbacks, reversals and old/new Fibonacci:

I've made a smaller pic for this page;
the large sreenshot is here:
GBP/USD 4 hour Fibs

Usually, if we have a large wave, for example, 300 pips or more, a pullback can also be large, which in case of being over 100 pips requires a new Fibonacci setup.

In order to confirm a trend reversal we need to use larger wave and therefore will rely on old Fibonacci...

That's now the case with the screen shot above.
In order for a trend reversal to be confirmed we have to see price trading above 75.00 orange line of AB Fibonacci.

Currently we can see that our old AB Fibonacci setup on the pic above haven't fulfilled the first requirement yet, which is to register in a "must channel". Otherwise, despite new BC Fibs I would Sell on the open of Candle #6 (because whole Candle #5 is outside 25.0 orange line).

Our new BC Fibonacci setup, however, is valid since Candle #3 has registered in a new "must channel". Therefore, we will take trades according to our new Fibs. I would be very cautious about trading Up because we are still haven't seen a decent AB wave retracement and our green colored moving average on the screen shot above suggests that we are in a downtrend. But even if I did I would consider old Fibonacci lines and until I see a full candle closing outside 75.00 orange line I would treat the move as a large pullback on old AB Fibonacci and keep my stops tight.
So, a trend reversal in this case is confirmed when a full candle is closed above 75.0 of old AB Fibonacci.

I hope my reply is somewhat readable and not very confusing, but if not, please do not hesitate to ask questions.

Regards,
Edward.

Hello Edward,
Hope this day finds you doing well!

this is a really nice strategy.

Best Regards
Hany

Hi,
We actually look for those large swings that are over 100 pips to apply a new set of Fibs on our chart. Once we got 200 pips swing, that's a signal to reset Fibonacci.

Only when a swing is less than 100 pips we continue using old Fibonacci levels.
I hope this clarifies the strategy. If not, please do not hesitate to ask further questions.

Regards,
Edward.

hi edward,
I noticed that Fibonacci tool is difficult to get higher and lower swing that fall betwween 100 pips. From the chart GBP/USD the smallest pips between higher and lower swing is 200 to 400 pips.Pls kindly assist

Hi Gibson,

I haven't tested the strategy on 1 hour chart. Hourly charts can be quite misleading when it comes to identifying the major trend. Since my plan is to stay in a trade for a long time I decided to avoid reading signals off 1 hour charts.

If you'd like to try it out, I would really appreciate some comment-report about the performance on hourly charts.

Happy trading!
Edward.

hi edward,

to clarify my prior post; using the one-hour chart would allow one to get in as soon as a one-hour candle closed above or below the .75/.25 level, rather than waiting for a 4-hour candle close.

kind regards,
gibson

hi edward,

this is a really nice strategy. have you tested it on a one-hour time frame?

the most successful strategies seem to be on the daily and 4-hour timeframes, but are like watching paint dry for people who like to check the screens every hour or so.

kind regards,
gibson

Hi Gibson,

Thank you for your question.
Yes, I would suggest waiting for both RSI and MAs to confirm market direction, which would be a safe mode entry, the one I prefer.

In the past I tried relying on Fibonacci signals only. It often hit me badly. Since then I stopped taking unnecessary risks.

Best regards,
Edward.

hi edward,

thanks for your well thought out responses to these questions. your answers really clarify the use of the strategies!

if the trend is up, and the price dipped below the upper "must" level, and then a full candle (including shadows) closes above the .75 level, we go long. but what if either the daily rsi is less than 50, or the 100 EMA is below the 150 SMA?

would you then wait until both the rsi and MAs are positive (which might take awhile) and the latest candle is also above the .75?

kind regards, gibson

Hello Phil,

Thank you. Same good weekend to you!
We need a complete candle above 0.750, e.g. the whole body of the candle including shadows. The candle that passes up through 0.750 isn't enough, but it carries a good message for us to check up on the charts soon.

Best regards,
Edward.

Hello Edward,
Hope this day finds you doing well! My question is, let's say we're trading long, you say wait for a full candle to close outside of .750

Do you mean a complete candle above the .750 line or a candle that passes up through the .750 line and price closes on that candle above the .750 line. Thanks for clarifying this for me. Best wishes to you and your family for the upcoming Labor Day weekend!

Thanks again,....Phil

Hi Beatrice,
Action 1: waiting for the price to go in the "must channel". Once completed, go to action 2.
Action 2: waiting for a full candle to close outside 0.750 or 0.250 Fibonacci level.
Action 3: Enter.

Yes, you are right, usually by that time the price's already moved quite a bit. But that's the filtering option we want to use for our first entry. Once in the trade, with the next wave this strategy will help us to stay longer and prevent early exits.

If you, for example, decide to get in earlier by using common Fibonacci retracement levels (0.382, 0.50, 0.618), yes, you have a chance to start trading much earlier, but also you have a higher chance to lose if the price ignores Fibonacci levels for some reason.

One more idea to try out (which will guarantee an early entry but won't guarantee it to be always safe) is:
entering only at 61.8% Fibonacci retracement level with the stop at 75%.

All the best in your trading!
Edward.