Complex trading system #5 (Fibonacci trading)
Submitted by Edward Revy on June 30, 2007 - 13:27.
Traders were asking to post some strategies that will work on smaller time frames.
Here is one very nice trading system that can be worth your attention.
When a trader chooses to use small time frames (like 10 min, 15 min, 30 min even 1 hour) risks to be wrong are always higher than with larger time frames.
Therefore, it is very important to have a really good Forex trading system that can advise on entries with high chances to win and what's more important it should be able to tell exactly where to exit without need to constantly monitor the price.
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Hi Kiran,
sorry, I completely missed this page.
The stop level will be moved only when a new swing high/low is formed.
You can use Bill William fractals to identify tops/bottoms and move stops. Also, trailing alongside Parabolic SAR dots will work.
Best regards,
Edward
Thanks Edward,
Should I be looking at additional indicators too? RSI, MACD, Stochastic etc? How important are they in determening whether to enter a trade or not.
What are the most important things to look for, as currently I am breaking even / making a small loss.
How important is the 300sma mentioned either. I really want to learn to master this technique, and would really appreciate any advise you can give to chose the right type of trades.
Thanks again for all your help.
Kiran
Hi Kiran,
Stochastic, RSI, MACD indicators - they would be helpful first of all during market reversals. For that you have to learn how to identify divergence between price and those indicators.
Stochastic in general is good for spotting a changing momentum in price: when you look to enter on a pullback with Fibonacci levels, by watching Stochastic you can anticipate both time and shifting momentum (from bearish to bullish or vice versa) when Stoch lines start to cross. Kind of a visual, timing reference.
Also if you take Stoch 14, 3, 3 for 3-4 hour time frame of higher, it will help to evaluate pullbacks in terms of trend strength. The rule would be:
- for an uptrend, if during the pullback Stoch crossed above 50 level while never reaching below 50, the trend is running very strong, thus your chances to profit form it are higher in general.
- if, however, during the pullback in an uptrend Stoch reaches below its 50 level, there is a change coming - bears are getting stronger, which is the first a sign of a weakening trend. The uptrend may still continue, but may also not. A deeper pullback will be asking for a look at other, much larger fibonacci wave, most likely on a superior time frame, before we make any decision.
Regarding 300 SMA, I haven't seen this comment, but either way, it is not important, at lest less important than 200 EMA.
The 200 EMA helps to see major trends, if you don't want to trade against major trends, you should use it.
Best regards,
Edward
Hi Edward
Can I use EMA instead of WMA as the platform I use does not have WMA.
Thanks
Edwin
Hi Edwin,
SMA might be slightly better, although with such a small Moving Average like 5, the difference is minimal.
What platform is it without WMA?
Regards,
Edward
Dear Edward
I am trying to learn the Fibonacci strategy. I have encountered the attached situation whereby the price does not move in the 'short' direction as hopefull. Kindly advise if I have done the set up correctly?
Thanks
Edwin
Hi Edwin,
From the screenshot, Fib levels are good.
Price didn't go all the way to the profit level, but it tried to signal us that it can't reach it, by making a double bottom on the second attempt.
This should have warned us about necessity to tighten the stop, ideally set it to break even +3-5 pips as a reward.
Other than that, if to leave it as is, it worked well, just not in our favor this time.
Regards,
Edward
Hi Edward
Thanks for the comment. understand your point. Btw, when we are using Fib strategy in a 15 mins chart, do we need to follow the overall day trend?
Thanks
Edwin
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