Advanced system #2 (Fibonacci Trading)
Submitted by Edward Revy on May 6, 2007 - 04:39.
The fact that Fibonacci numbers have found their way to Forex trading is hard to deny.
Moreover, trading currencies with Fibonacci tool for many traders have become the bread and butter of their whole trading career.
So, shall we look at the one of such good Forex trading systems today?
Trading setup and tools we need:
Time frame: 3 hour (or 4 hour).
Currency pairs: any.
Indicators:
Fibonacci tool - our main tool
EMA 100 – green (visual guidance)
SMA 150 – red (visual guidance)
RSI (14) on a daily chart
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Thanks Edward,
I am still unclear.
Once the price is inside the 'must channel' do we wait until a full candle closes at 250/750 and THEN retraces back inside the must channel before placing a trade? Or do we place it once the candle closes at 250/750-which would usually mean less profits because the price has already moved quite low or high already.
Thanks,
Beatrice
Hi Mark,
Thank you for your question.
If the actual retracement is more than 100 pips, you've got a new valid wave, therefore you should definitely draw a new Fibonacci on that retracement and abandon previous Fibonacci lines. You then look at your new Fibonacci and use the same old rules: if it goes above 0.750 - you enter Long, below 0.250 - you go Short.
Setting new Fibonacci lines on retracement of course makes sense only if the old Fibonacci levels 0.250 and 0.750 haven't been breached yet, e.g. the price still trades within those levels.
If so, there is one more trick to use, which suggests traders keep the old Fibonacci for a while.
It is used to recognize a true trend reversal from a large pullback.
Let's take the picture of GBP/USD we used above. The trend was up. Let's take current Fibonacci there and let's assume that the retracement we see there now is over 100 pips. It instructs us to draw a new Fibonacci on that retracement.
Now if the price on the new Fibs goes above 0.750 level - we can easily enter Long again/continue trading up. But if the price on the new Fibs goes below 0.250. There we start to suspect a possible trend reversal. This is were old Fibonacci lines can help. While aggressive traders can start selling immediately, more conservative traders would only close their current long positions and look at old Fibonacci lines. Once 0.250 line of the old Fibonacci gives up and the price closes below it - only then conservative traders begin Shorting as a trend change signal by that time will be looking much stronger.
Regards,
Edward.
Hi!
I have a question.
If you draw a fibonacci line and then the actual retracement is more than 100 pips, is it appropriate to redraw the fibonacci lines on the retracement itself and then look for the must channel qualification or do you stick with the original fibonacci lines before the retracement and wait for the first full candle above 75 or below 25?
Thanks in advance,
Mark
That's right. If you are looking to sell in a downtrend wave, you look for the price to retrace upwards and make at least 1 pip in above 38%. This validates the retracement and so you can enter once the full candle closes below 25%. Thank you, Tommy. Same nice holidays to you and all other users.
Edward.
SO, IN ANOTHER WORD..WHEN THE NEW WAVE IS DOWNWARD WE HAVE TO WAIT UNTIL IT GOES UP TO 38% AT LEAST ONE PIP THEN WE PUT IN THE SELL OREDER..AM I CORRECT.
THANKS IN ADVANCE AND HAVE A NICE JULY THE FOURTH HOLIDAY,
TOMMY
Yes, you have to wait. Fibonacci based entries are always made on retracements. If you jump on the wave that has not retraced yet, there is a big chance that you will become a witness of an upcoming retracement, which is not pleasant when you have already opened a trade...
HI EDWARD!
I DO HAVE A QUESTION PLEASE.
REGARDING THE 'MUST CHANNEL' THE NEW WAVE IS STILL GOING UPWARD.
DO I HAVE TO WAIT FOR THE PRICE TO GO INSIDE THE 61% AT LEAST 1 PIP BEFORE BUYING?
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