I am going to reveal a powerful fibonacci trading strategy that I learned many years ago. It combines structure analysis, fibonacci retracement and extension levels and candlestick analysis. Step 1 Find a trending market - the market that is trading in a bullish or in a bearish trend on a daily time frame.
AUDUSD is trading in a bullish trend on a daily.
Step 2 Execute structure analysis - identify key horizontal and vertical structures on a daily time frame.
Take a look at key structures that I spotted on AUDUSD.
Step 3 Draw fibonacci retracement levels.
Here are the important ratios you should look for: 382, 50, 618, 786.
In a bearish trend, draw fibonacci retracement levels from the high of the trend to current low based on wicks.
In a bullish trend, You should apply fibonacci retracement from the low of the trend to a current high based on wicks.
Take a look how I draw the retracement levels, I took the low of the trend and the high of the trend.
Step 4 Find confluence.
Look for fibonacci numbers that match - lie within key structures that you identified.
Support 1 matches with 382 retracement. Support 2 matches with 786 retracement.
Remove other ratios from the chart.
Step 5 Wait for a test of one of the fibonacci levels that match with key structure
The price perfectly tested 382 retracement level.
Step 6 Wait for a confirmation on a 4h time frame.
Our confirmation will be a formation of an engulfing candle - a strong candle that completely engulfs the entire range of a previous candle with its body.
In a bearish trend, we will look for a formation of a bearish engulfing candle. Bearish engulfing candle indicates a strong selling pressure and the strength of the sellers.
In a bullish trend, we will look for a bullish engulfing candle. It indicates a strong buying reaction and imbalance.
Have a look at a bullish engulfing candle that was formed on AUDUSD on a 4H time frame after a test of 382 retracement.
Step 7 Open a trading position, set stop loss and choose the target.
After you spotted an engulfing candle, open a trading position.
Open short after a formation of a bearish engulfing candle and open long after a formation of a bullish engulfing candle.
If you sell, your safest stop loss will be 1.272 extension of the last bullish impulse on a 4H.
If you buy, your stop loss will be 1.272 extension of the last bearish impulse on a 4H.
In our example, our stop loss will be 1.272 extension of a bearish impulse leg on a 4H time frame. The extension is based on high and low of the impulse.
If you short, your take profit will be the closest key structure support on a daily.
If you buy, your take profit will be the closes key structure resistance on a daily.
Here is our take profit level.
Being applied properly, the strategy should generate 60%+ winning rate.
Always remember to check your reward to risk ratio before you open the trade. It should be at least 1.1/1.
Also, before you place a trade, always make sure that you trade WITH the trend and take only trend-following trades.
The strategy works perfectly on Forex, Gold, Silver, Oil, Indexes.
Good work, thanks for sharing! Important to add that even the best strategy has losing trades. This idea has been selected for Editors' Picks. Congrats!
VasilyTrader
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@TradingView, thank you! I truly appreciate!! Next time I will mention!
JoeChampion
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uPaSKaL
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I've been following you on TradingView for almost a year! I've learned a lot from you! You were excellent as always.
This is correct. I’m trading for 8 years now and have tried a lot of things. Trading WITH the trend is the best you can do to make around 65% winning trades. Fibonacci retracements and support/resistance levels are very important tools to pick good trades.
This idea has been selected for Editors' Picks. Congrats!