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Fibonacci Trading Was Hard, Until I Discovered These Game Changing HACKS (Strategies Included) - YouTube
Channel: The Secret Mindset
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One of the more common price analysis tools
used by traders is Fibonacci.
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In todayâs video, weâll talk about the
most practical 10 uses of retracements, the
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best practices for building a trading strategy
around Fibonacci and other trading tips to
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find high-probability signals using this tool.
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1.
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There must be a visible trend otherwise FIB
levels wonât have a meaningful impact on
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price movement
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No matter how often you use Fibonacci, what's
most important is to use it correctly every
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time.
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And choosing the correct price swing for placing
your Fibs is one of the main problems when
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using it.
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Fibonacci is an effective method but you must
place it on the swing that makes the most
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sense for current market conditions.
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The most important aspect when using Fibs
is the presence of a trend.
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There are two primary ways to solve the problems
with drawing Fibs on the chart:
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1.
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Focus on trend and momentum.
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2.
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Using the logic price swings for placing the
Fibonacci tool.
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Please remember this: Fibs do not work well
in consolidations, corrections, ranges and
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sideways moves.
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2.
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Donât use the Fibonacci retracement tool
on very small price moves or shorter time
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frames
Applying Fibonacci retracements over a short
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timeframe is ineffective.
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The shorter the timeframe, the less reliable
the retracement levels, making it very difficult
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for the trader to really pick and choose what
levels can be traded.
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Not to mention in the short term, spikes and
false breakouts are very common.
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These dynamics can make it especially difficult
to place stops or take profit points as retracements
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can create narrow and small confluences.
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So try to focus on larger time frames when
you apply FIB levels.
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By keeping tabs on the long-term trend, you
can apply Fibonacci retracements in the correct
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direction.
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Further, if you use the Fibonacci retracement
tool on very small price moves, it may not
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provide much insight.
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The levels will be so close together that
almost every price level appears important.
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3.
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Apply Fibonacci retracement levels on the
correct price swings
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Using a Fibonacci retracement tool is subjective.
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There are multiple price swings during a trading
day, so not everyone will be connecting the
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same two points.
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The two points you connect may not be the
two points others connect.
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Hereâs how you correctly apply FIB retracements.
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â you determine the dominant trend
â you identify the swing high and swing
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low before drawing the Fibonacci lines
â in a bullish trend, draw the Fibonacci
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from the swing low to the swing high.
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â in a bearish trend, draw the Fibonacci
from the swing high to the swing low.
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â you will be drawing the Fibonacci tool
from the wicks of the swing highs and lows
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At the very basics, the clearer the swing
low, the clearer the swing high and the clearer
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the âtrendâ between these 2 points, the
more accurate a Fibonacci Retracement will
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be.
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Also, very important: donât try to force
FIB levels.
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The best and most helpful Fibonacci retracements
are those where you donât have to look long
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on a chart.
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4.
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Shallow vs Deep Retracements
In trending or impulsive markets, the Fib
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levels indicate precise levels where there
is a high chance of the market turning back
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in the direction of the trend.
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Basically, FIB levels provide areas of interest
to watch on pullbacks.
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There are 2 main types of pullbacks using
Fibonacci: shallow and deep retracements.
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If you correctly analyze the strength of the
trend, you will have high-probability areas
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to take trades
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Once a trend has clearly established itself
then you will often see shallow pullbacks
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to 23.6, 38.2 and 50% FIB levels, which are
very typical before the trend continues.
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So when the trend is strong, pay attention
to these FIB levels.
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Price will make a deep pullback when a trend
is not yet clearly established.
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In those cases price can make multiple ups
and downs which will test the bottom (in an
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uptrend) or the top (in a downtrend) but without
breaking those levels (which would invalidate
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the trend).
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You will see deep pullbacks to the 61.8, 78.6
and 88.6 Fib levels.
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If the price retraces 100% of the last price
wave, that may mean the trend has failed.
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5.
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The Golden Ratio Retreat Strategy
The 61.8 level is called the Golden ratio.
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Hereâs how the Golden Ratio Retreat Strategy
works.
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In this example, we found this downtrend and
applied the Fibs.
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⢠If the price moves up above the 50% retracement,
but does not close above the 61.8 Golden Ratio,
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look for a bearish entry.
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⢠It is OK for the wick of the candle to
break the 61.8 line as long as the price closes
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below it.
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⢠As the price bounces from the 61.8 Golden
Ratio, look for a possible reversal move back
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down to the 38.2 level.
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⢠If the price breaks the 38.2 level, the
23.6 may be its next hesitation point.
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⢠If that doesnât hold, expect a possible
100% retracement back to the 0 line.
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⢠These levels are good potential places
to consider scaling out of the trade.
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⢠If the price never gets higher than the
61.8 then you can set your initial stop just
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above that line.
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⢠If the price went higher than the 61.8
then you could set a stop above the high of
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the candle that broke the level.
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⢠If scaling out of the trade, consider
moving the stops to the next Fib line as the
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targets are met.
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6.
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Combine multiple FIB Retracements to create
confluence
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Fibonacci Confluence is essentially combining
multiple Fibonacci levels to find clusters
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where these levels align around the same area.
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This example reveals an area of confluence
formed by the 50 percent retracement of AC
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wave and the 78.6 percent retracement of BC
wave.
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In this other example, price found support
at this area of confluence formed by the 50
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percent retracement of AC wave and the 78.6
percent retracement of BC wave in this daily
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chart.
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This is one of my favorite trading strategies
using Fibonacci because it leads to high probability
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setups.
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7.
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Confluence with moving averages
Fibonacci can provide reliable trade setups,
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but not without confirmation.
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Applying additional technical tools like moving
averages will support the trade opportunity
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and increase the likelihood of a good trade.
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Fibonacci and moving averages work well together
because both tools are most effective in a
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trending environment.
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First of all, using moving average will help
you determine if there is a trend.
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Second of all, moving averages also act as
dynamic support and resistance in a trend,
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which means that a moving average adds confluence
to a Fib level.
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For instance, if a 50% Fibonacci retracement
and the 200 EMA align at one spot on the chart,
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then this is called a trading confluence.
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There is a combination of elements joining
together at one point on the chart.
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When a FIB level and a moving average are
confirming a spot on the chart to be of importance,
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then the likelihood of price reacting to this
level increases.
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Again, this is very effective, because by
combining FIBS with moving averages, you remove
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the weaknesses of each tool when used separately.
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8.
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Confirm Fibonacci levels with Volume
As a trader when you see the price coming
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into a Fibonacci support area, the biggest
clue you can look for is the volume, to see
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if that support will hold.
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Notice how the stock had a number of spikes
higher in volume on the move up, but the pullback
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to support at the retracement saw volume decreasing.
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This does not mean people are not interested
in the stock, it means that there are fewer
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sellers pushing the price lower.
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This is where buyers come in and accumulate
shares in anticipation for the rally higher.
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High volume after the rejection of a FIB level
represents a very good sign.
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9.
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Look for divergences at FIB levels using RSI,
MACD or Stochastic
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Now, rather than blindly entering into a trade
because it hit a particular retracement ratio,
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you need a confirmation signal that the price
is likely to turn.
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I prefer adding a momentum oscillator, like
the RSI, Stochastic or MACD, and look for
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a divergence signal, forming around FIB levels.
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These are leading signals, by the way.
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Here we have a downtrend with the FIB levels
added to the chart.
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The first level, the 38.2% level was broken
with ease.
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However, we can now see that the 50% level
is providing some resistance.
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We can confirm the slowing momentum with the
RSI.
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The RSI is showing a divergence which is a
bearish signal as well.
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Price makes higher highs, but the oscillator
makes lower highs.
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This means that momentum is slowing.
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And slowing momentum into a resistance level
is a good recipe for a trading opportunity.
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In this example we have an up trend, with
the MACD indicator showing a hidden divergence.
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Here, when the MACD hidden divergence appeared
on the price chart, the price reached the
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38.2 Fib level.
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When price tested this Fibonacci retracement
level - this would have been a good level
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to enter in the direction of the main trend.
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10.
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Analyze candlestick formations around FIB
levels
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Analyzing price action at Fib levels represents
another effective way to take signals.
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In this case, traders wait for a candle stick
pattern to occur at the Fibonacci level instead
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of âonlyâ anticipating a price reaction
at the Fib.
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In this way, the candle pattern confirms the
response of the market at the Fib level.
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Generally speaking, these candlestick patterns
combined with Fibonacci levels tend to work
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better on longer-term time frames.
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When price reaches a FIB level, you look for
a rejection candlestick that has formed at
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or near the level.
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The three types that are of most interest
will be the hammer candlestick, which is often
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seen after a bearish price move, the shooting
star candlestick, which is often seen after
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a bullish price move, and the Engulfing pattern,
which can either be of a bullish or bearish
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variety.
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These candlestick reversal patterns are quite
powerful and can foretell the end of a retracement
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move.
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As always, if you learned something new and
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Until next time.
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