Fibonacci Trend Line Strategy – Simple Fibonacci Trading Strategy.

Get ready for the Ultimate Guide to Fibonacci Trading!

Why Fibs? I realized how often I actually refer to Fibonacci and Fib levels in my articles. Choosing this topic was very easy, to say the least.

I will provide you with a grand and excellent explanation of Fibonacci and Fib trading, so make sure to take notes and grab some extra coffee just in case!

Table of Contents hide.

Who is Fibonacci?

Fibonacci was actually named Leonardo Pisano Bigollo. He was an Italian Mathematician and considered “the most talented western mathematician of the Middle Ages.” Fibonacci is well known for the Hindu-Arabic numeral system in Europe, which was published in 1202 in his book Liber Abaci (Book of Calculation).

He is also known for the Fibonacci number sequence. However not because he discovered the sequence himself, but they because were named after him. The numbers were used as an example in the Liber Abaci. The numbers are : 0,1,1,2,3,5,8,13,21,34,55,89,144, etc. The trick is to add the first two numbers, which equals the third (0+1=1), then continue by adding the 2nd and 3rd which equals the 4th number (1+1=2), etc.

Now that we have introduced the name to all our fellow traders, let us move on to explain how to trade with Fibonacci? Having knowledge is one element, but actually implementing is a whole other matter. So we will also look at how to trade a Fibonacci Trading Strategy and how to trade using Fibonacci retracements. You can also read about forex trading money management strategies for better trading.

What are Fibonacci Sequence Levels?

The Fibonacci sequence numbers are mathematically derived numbers but are easy to calculate. The list of Fib sequence numbers is:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, and continues.

The trick is to add the first two numbers, which equals the third (0+1=1), then continue by adding the 2nd and 3rd which equals the 4th number (1+1=2), etc. As the numbers are added a new number is created. The method stays the same for higher numbers as well such as 89+144 = 233, and then 144 + 233 = 377.

Interestingly enough, Fibonacci sequence numbers tend to do pretty well as guidance on how far a thrust or impulsive move can last in a number of pips. This holds true for all currency pairs. Of course, the lower frames will adhere to lower Fib numbers, whereas higher time frames to higher Fib sequence levels.

What are the Fibonacci Retracement Levels?

These numbers are calculated by dividing the Fibonacci sequence numbers (mentioned above).

Here is an example:

8/13 = 0.618…. or 61.8%.

34/89 = 0.382… or 38.2%.

The exception is the 0.5 or 50% mark, which is, in fact, the halfway mark.

Here is the full list of Fibs:

1) The 23.6% or 0.236 – i.e. 13/55 = 0.236.

2) The 38.2% or 0.382 – i.e. 13/34 = 0.382.

3) The 50.0% or 0.500 – half way.

4) The 61.8% or 0.618 – i.e. 13/21 = 0.618.

5) The 78.6% or 0.786 – square root of 0.618.

6) The 88.6% or 0.886 – square root of 0.7864.

They are a great method when measuring market psychology. Who wouldn’t want to get a 50% discount? Picture yourself in front of your favorite retail store and all of a sudden a person steps out and says: “Everything in here is 50% discounted!” Guess what that does? It creates a lot of interest. The same holds true in the Forex market: traders are going to use that opportunity! Just like shoppers.

Last but not least, the 618 Fib retracement is extra important in Forex trading because it is the Phi number. The phi is often called the golden ratio. Two quantities are in the golden ratio if: the ratio of the sum of the quantities to the larger quantity is equal to the ratio of the larger quantity to the smaller one. In math this means ((A+B)/A) = Phi. But this number is not only important in Forex trading: the Phi number can be seen in arts and even nature!

What Are Fibonacci Target Levels?

The Fibonacci targets are great because they provide great exits in a trend. The most important Fibonacci targets are:

However, there are other Fib targets that are worth having on the chart:

You can add these targets by clicking on your Fibonacci properties and then adding these levels to your Fibonacci retracement tool. Make sure to add the minus sign, though.

When Do You Use Fibonacci Retracement?

Fibonacci levels are valuable in identifying potential support and resistance levels. When using the tool for trading purposes, then the key is to know when to use the Fibonacci tools: the best environment is trending markets. Fibonacci levels work best in trend markets and do not provide any benefit in ranges.

Plain and simple, the Fibs have no value in zones where the price is consolidating, correcting, ranging and moving sideways. Why? Traders tend to ignore these levels because currencies act and react to different tools and items such as tops and bottoms.

Here is an example of consolidation:

If the currency, however, is indeed trending or if the Fib is used on higher time frames, then the tool is a great asset because it gives you a great indication of where the market will turn back in the direction of the trend .

How Do I Use Fibonacci Retracement?

Traders can use the Fibs for their trading decisions and choose their entry, target (see below) and stop loss placement solely based on this tool. But traders are also able to utilize the Fibonacci numbers in a different way.

Fibonacci levels can also filter out trade ideas. No trader would want to go long or short in front of a big Fib level and their trade idea would be invalidated due to this situation.

Fibs are also be used as a trigger instead of an exact entry. A trader could have a certain Fib level in mind which they would like to trade. A direct entry order at the Fib level would be one way of tackling this setup. But traders can also view the Fib level as a trigger and enter a trade later on after other conditions have been met such as a candlestick pattern, break out or any other confirmation that price is respecting the Fib level. We also have training on Candlesticks Patterns and How to use them.

How to Place the Fibonacci Retracement Correctly.

It is crucial to place the Fib retracement tool on the correct top and bottom. I myself am a trader that places the tool from left to right – although there are traders who do the opposite it and place it from right to left. For me placing the tool from past to current price (left to right) is better than from current price to the past, and we will use that in future examples.

In any case, Forex traders want to place the Fib in the correct place, which is from the bottom to top in an uptrend and from top to bottom in a downtrend. This move from top to bottom can also be called “swing high swing low”. Placing the Fib correctly is a vital step – otherwise, you could be fibbing the wrong leg of a move and get stopped out for a loss.

A few key items to be aware of:

Use tops and bottoms on your time frame – use natural tops and bottoms for swings and legs to place your fib; Use Fractals – Fractals will help you with identifying tops and bottoms; Use Elliott Wave – make sure you are fibbing a wave 1, a wave 3, a wave extension (sub-waves of a wave), a wave A or an entire 5 wave sequence, otherwise the Fib might fail (when using it as a tool for entries); Use the Awesome Oscillator – check when the zero line has been crossed and wait for a retrace back to that zero line. You now have confirmation that the move is 1 leg or swing high swing low.

How Do You Know It’s Time to Place Fib?

It is important to realize that a new Fib is preferably not placed on a new swing high swing low unless the target has been hit (see Fibonacci targets for more details on the levels).

The reason why is simple: only when the targets have been hit is the currency pair, in fact, confirming a trending mode. If the currency bounces in between the top and bottom then, in fact, the currency is in a range and Forex traders only want to place a new Fib once the trend is back in force.

The most important target to hit is the -0.618 or the -0.272 in the case of the 78.6% and 88.6% Fibonacci retracement levels.

Using Fibs in Confluence with Other Tools.

Finding confluence is key. With confluence, I mean finding multiple reasons for taking a trade.

1) A Fibonacci retracement and a Fibonacci target at the same level –

When a Fib target and a Fib retracement are lined up at the same price, then the likelihood of price reacting to it has substantially increased.

2) Price action and important Fib levels –

Waiting for a confirmation of price reaction to a Fib level is a great method of reducing risking and making sure that the Fib placement you used is correct.

3) Fib levels and key levels in the market (such as day and week support and resistance levels) –

This another great way of combining various technical analysis tools in the Forex market.

4) Fib levels and trend lines & moving averages –

Last but not least, needless to say, that using moving averages and/or trend lines with Fibs of course just as good as well.

Fibonacci in Chart Patterns and Fibonacci Time Ratios.

To understand how Fibonacci plays an integral part in chart patterns , I advise you to read through last week’s article which discusses patterns and Fibs in depth .

Fibonacci time ratios explain how long a swing high swing low might take in time before the next swing high swing low starts. It does that by measuring a completed swing high swing low and then placing 38.2%, 61.8%, 100% of the time length forward. The next swing high swing low has a higher chance of finishing at these Fib levels.

Different Time Frames for the Fibonacci Sequence.

The Fibonacci retracement tool has more importance and significance when used on a higher time frame. However, the levels tend to work well on all time frames in fact.

Traders can use the tool on multiple time frames at the same time. In one instance the Fib might act as a potential turning spot for a trend continuation on a higher time frame, such as the daily chart. Whereas on a smaller time frame, a trader could use a Fib enter on a pullback. The first one is used as a potential trigger and the second Fib as the actual entry.

What Fibonacci Retracement Levels Do You Use?

My regular blog readers already know that I LOVE Fib levels. Why?

They are a great method when measuring market psychology. Who wouldn’t want to get a 50% discount?

I mean picture you in front of your favorite retail outlet and all of a sudden a person steps out and says: “hey everything in here is 50% discounted!” Guess what that does with your psychology?

The same holds true in the Forex market. Let’s assume there is a trend taking place. The trend stalls and retraces back 50% of the way. Traders are going to use that opportunity! Just like shoppers.

The KEY is trending markets.

Fibonacci levels work best in trend markets.

I repeat …trends!

In consolidations, corrections, ranges, and sideways moves, the Fibs have less value. Especially on smaller time frames. The reason is simply that the traders, the market in general and therefore price action tend to ignore these levels. In these, the currencies act and react to different tools and items such as tops and bottoms.

If the currency, however, is indeed trending or if the Fib is used on higher time frames, then the tool is a great asset because it gives you a great indication of where the market turns back in the direction of the trend.

So what are the levels?

Well, all of you have heard of the 382, 500 and 618 Fibonacci retracement levels of course. Also written like this sometimes: 0.382 / 0.500 / 0.618.

These numbers are calculated by dividing the Fibonacci sequence numbers. Except for the 500, which is just the halfway mark.

8/13 = 0.618…. 34/89 = 0.382.

But there are other Fib levels as well! Here is the full list I use:

1) The 236 or 0.236 – i.e. 13/55 = 0.236.

2) The 382 or 0.382 – i.e. 13/34 = 0.382.

3) The 500 or 0.500 – halfway.

4) The 618 or 0.618 – i.e. 13/21 = 0.618.

5) The 786 or 0.786 – square root of 0.618.

6) The 886 or 0.886 – square root of 0.786.

What Is the Golden Phi?

The phi is a crucial element in Forex Trading. The phi is often called the golden ratio. Two quantities are in the golden ratio if: the ratio of the sum of the quantities to the larger quantity is equal to the ratio of the larger quantity to the smaller one. In math this means ((A+B)/A) = PHI.

The PHI is equal to 0.618!! That is why the 618 Fib retracement is so important in Forex trading.

BUT, this number is not only important in Forex trading! The Phi number can be seen in arts and even nature! Wow.

That said, all Fib levels have their importance, and once you know these great Fib levels, you have completed the first baby step in succeeding with Fibonacci trading. You now know how to trade with Fibonacci retracement levels. The fun increases a lot more in the next section!

What Are Golden Targets?

The targets are more important and this section will really dazzle you! This is the real beauty of how to trade with Fibs! So sit tight and postpone that dog walking you might have planned for just a few more minutes!

Pay good attention… the targets you want to add to your Fibonacci retracement tool are:

These are AMAZING targets. The market truly respects these levels.

With these targets now your Forex toolbox, you will never ever have to doubt one single second in your life where to take profits.

I can give you tons and tons of examples on the charts. The market keeps repeating itself over and over. These are the levels you want to keep in mind!!

Other targets which can have importance are:

You can add these targets by clicking on your Fibonacci properties and then adding these levels to your Fibonacci retracement tool. Oh and make sure to add the minus sign!

The big question from my side:

Are any of those numbers new to you?

And my 2nd question: how frequently do you use Fibonacci retracements and Fibonacci targets?

Avoid the Trading Trap.

What I mean with this is: be careful with what you Fib!

Every Forex trader wants to place the Fib on the correct swing high swing low.

That is vital. Otherwise, you could be fibbing the wrong leg of a move and get stopped out for a loss!

Finding the correct leg does take time and practice. But it is well worth the effort!

If you ever need any help with placing the correct Fib, make sure to add us to your Twitter following list and ask us for our opinion. Send us a screenshot and we will give back our feedback! So make sure to use that free resource!

A few key items to be aware of:

a) Use tops and bottoms on your time frame à use natural tops and bottoms for swings and legs to place your fib;

b) Use Elliott Wave à always make sure you are fibbing a wave 1, a wave 3, a wave A or an entire 5 wave sequence, otherwise, the Fib might not work all too well;

c) Use the AO à check when the zero line has been crossed and wait for a retrace back to that zero line. You now have confirmation that the move is 1 leg;

d) Wait for the Fib targets to be hit before placing a new Fib. If the currency doesn’t hit the target, wait with Fibbing a new leg, because the currency could be ranging!

Great Trading Strategy.

Read here Nathan’s great Fib trading strategy for the long-term charts: “long-term-trading-strategy-for-forex.”

Elliot Wave.

Fibonacci levels go hand in hand with the Waves. And every Forex trader should know this golden guideline:

Wave 2’s usually have a deep retracement; Wave 4’s usually have a shallow retracement. A deep retracement is a 500/618/786/886 Fib. A shallow retracement is a 236/382/500 Fib. A wave B retracement in a fast correction (zigzag) is often 3382/500/618 retrace. A wave B retracement in a slow choppy correction is often a 786/886/double top or break of top till 1.380.

My Trader’s Trick.

My number 1 tip for everyone is this: find confluence.

Confluence is key, just like confidence.

With confluence, I mean finding multiple reasons for taking a trade.

1. That could be for example a Fibonacci retracement and a Fibonacci target at the same level. When a Fib target and a Fib retracement line up at the same price, then the likelihood of price reacting to it has substantially increased.

2. Another method for confluence is using price action at important Fib levels. Waiting for a confirmation of price reaction to a Fib level is a great method of reducing risking and making sure that the Fib placement you used is correct.

3. Using the Fib tools with key levels in the market such as day and week support and resistance levels is definitely a wise idea. This another great way of combining various technical analysis tools in the Forex market.

4. Last but not least, needless to say, that using moving averages and/or trend lines with Fibs of course just as good as well!

In the next section, we will teach you how to set up breakout and Fibonacci forex trades.

How To Setup Breakout & Fibonacci Forex Trades.

At one time, the AUDUSD downtrend offered an interesting chart to search for short setups. In fact, the price had already approached the 38.2 retracement level, which could have easily become a turning spot for downtrend continuation.

Looking at the 4-hour price action, it becomes clear that several candlesticks were showing struggle at the 38.2 Fibonacci retracement level but bullish engulfing twins could have annulled the bearish signals.

I, therefore, kept a close eye on the upcoming 4-hour candles looking to see if the price showed renewed bearish signals or will it keep retracing higher.

In both cases, I am specifically looked for shorts only because of the downtrend (see blue trend line). Here are the two bearish scenarios I am counting with:

A break of the 4-hour candle low (green circle) for a break out trade to lower levels (orange arrow); A bounce at the Fibonacci confluence of Fib retracement and Fib target: The 50% Fib retracement and the -27.2 Fib target (red circle); The 61.8% Fib retracement and the -61.8 Fib target (dark red circle).

Chart Patterns.

In both scenarios, it is useful to wait for a candlestick pattern to confirm that the price is bouncing at the resistance spot or pushing through the support level. This helpful tactic has a high rate of ensuring a decent entry at the right time.

The same upside movement could also occur on the NZDUSD. The Kiwi was in a big downtrend as well but recent choppiness has put bearish ambitions in the freezer. You can also trade with the breakout triangle strategy.

Looking At The Fibonacci Retracement Level.

Looking at the upside momentum (green arrow), the break of the downtrend line (blue) and the double bottom (purple circle) at the 61.8 Fibonacci retracement level (light blue), the price could be ready for a bullish breakout (blue arrows) above the resistance line (red).

I was interested in taking a long upon the break of resistance (aft candlestick confirmation) and/or taking a short at the Fibonacci targets. There are two valid options for catching the bullish counter-trend breakout setup:

One is to look for a daily candle pushing through the trend line; The other is to monitor the same bullish breakout but on a lower time frame such as the 4-hour chart.

The advantage of the H4, in this case, is the potential for an earlier entry and hence more space to targets as well.

When I zoom into the 4-hour chart, I am able to see both a bull flag and contracting triangle type of forex chart pattern. The break below support and the break above resistance would indicate the break of the contracting triangle. A break of both the resistance and support levels will be the trigger I am looking for a trade setup.

Also, in this case, a strong candle is warranted: close near the low or high, sizeable candle and the majority of candle outside of trend line.

How Do You Trade Using Fibonacci Trend Line Strategy: 5 Steps.

Now that we understand the basics of Fibonacci trading, let’s cover using Fibonacci for a trend line strategy. Here’s a simple Fibonacci Retracement Trading Strategy that uses this trading tool along with trend lines to find accurate trading entries for great profits.

There are multiple ways to trade using the Fibonacci Retracement Tool, but I have found that one of the best ways to trade the Fibonacci is by using it with trend lines. We also have training on Trend Line Drawing with Fractals.

The Fibonacci Retracement tool was developed by Leonardo Pisano who was born around 1175 AD in Italy. Pisano was known to be “one of the greatest European mathematicians of the middle ages.”

He developed a simple series of numbers that created Fibonacci ratios describing the natural proportions of things in the universe.

These numbers have been used by traders now for many years!

With this Fibonacci trading strategy, you will learn everything you need to know to start trading with the Fibonacci Retracement tool. You’re going to find out the Fibonacci meaning, Fibonacci algorithm, Fibonacci biography, the Fibonacci formula for market trading, Fibonacci series algorithm, the Fibonacci sequence in nature, along with many other useful facts about this great tool!

Below is a picture of the different ratios that Leonardo created. We will get into detail later on as to which of these lines we will use for our trading strategy.

Your charting software should come standard with these ratios, however, you are the one that puts them on your chart. Many traders use this tool which is why it is important to have a trading strategy that incorporates this. You are going to need to know where to apply these fibs. You will need to place them on the swing high/swing low.

A Swing High is a candlestick with at least two lower highs on both the left and right of itself.

A Swing Low is a candlestick with at least two higher lows on both the left and right of itself.

If you are unsure of what that means let’s take at a chart to see what this looks like:

So here is what it would look like then on your chart with the Fibonacci Retracement:

Here’s a quick way to remember this concept. If it’s an uptrend, you want to start with the swing low and drag your Fibonacci level all the way up to the swing high. If it’s a downtrend, you start with the swing high and drag your cursor all the way down to the swing low. You can also read the strategy on how to use currency strength for trading success.

Simple enough. Let’s go ahead and look at all we will need with this trading strategy.

Trading Tools for Fibonacci Trend Line Trading Strategy.

Fibonacci Retracement Trend lines.

This trading strategy can be used with any Market (Forex, Stocks, Options, Futures).

It can also be used on any time frame. This is a trend trading strategy that will take advantage of the retracement of the trend.

Forex traders identify the Fibonacci retracement levels as areas of support and resistance. Because of this, these levels are watched by many traders which is why this strategy could be a difference-maker to your trading success.

Since we know some information about the Fibonacci Retracement let’s look at the rules of the Fibonacci Trend Line Strategy.

Fibonacci Trend Line Trading Rules.

Rule #1 – Find a Trending currency Pair.

This is simple enough. We need to make sure it’s either an uptrend or a downtrend.

In the example, we will be using today this will be an uptrend. We will be looking for a retracement in the trend and then make an entry based on our rules.

Rule #2 – Draw a Trend Line.

Since you already identified that it is in fact a trend by looking at your chart, now you need to draw your trend line.

Draw this on the support and resistance levels as the trend is going up or down.

Once you draw this trend line you are good to move on to the next step.

Trend lines are a key component of trading and I always recommend using them when you can.

Rule #3 – Draw Fibonacci From Swing low to swing High.

Now you can get your Fibonacci Retracement tool out and place it at the swing low to the swing high.

Remember this is an uptrend so we started at the swing low 100% and placed the second 0% level at the swing high.

Rule #4 – Wait for the Price Level to Hit Trend Line.

So far we found a trending currency pair, drew a trend line to validate this, and placed our Fibonacci at the swing low and swing high.

This rule is the critical step to the strategy so you need to pay close attention.

Because we need the price moves to hit our trend line, stall, and go back in the direction of the trend.

If it breaks the trend line and keeps going and blows past the 50%, 61.8%, 78.6%, then the trend is obviously broken and you need to look elsewhere because a trade with this strategy would be invalidated at that time.

With that being said let’s look at our chart and see what happened.

Great, it hit the trend line so why can’t we just go ahead and BUY now since it is an uptrend?

Well if you asked that, good question.

As I said, the market tends to follow these lines, but sometimes it will fake traders out and they will end up losing a lot of money when it breaks the trend.

This happens every single day, which is why it is critical to have a strategy that will help you know if this break may occur.

And we do not want any of that to happen to you, so let’s check out the criteria to enter to help us make a safe entry.

Rule #5 – Price Must Hit Trend Line in Between 38.2% and 61.8% Lines (Fibonacci Golden Ratio)

Before I start to explain, look at the chart to see what this exactly means:

The price retraced all the way back and tested the 38.2 mark for quite a while before hitting the trend line and continuing to go to the upside.

Once the price hit the trend line that we drew, we saw that it was in between 38.2-61.8 lines, and then our trade was one step closer to being triggered.

Why does it have to be in-between these lines for this strategy?

We want to capitalize on the big retracements. And the 38.2, 50, 61.8 lines have all been proven to be the best retracement lines to use with the Fibonacci.

Once you find this, look for an entry.

Rule #6 – Entry Point.

So everything is lined up to make a great profit on this retracement, what is the last step to make the trade?

In a BUY-In order to make your entry, you will wait for the price to close above either the 38.2% or 50% line.

In a SELL-In order to make your entry, you will wait for the price to close below either the 38.2% or 50% line.

Let’s check out the charts to clarify this:

Refer back to this picture when you use this strategy. This shows us what our charts will look like before we make a trade.

*Note: If the Price hit our trend line in between the 50% line and the 61.8% fib line, then we would wait for a candle to close above the 50% line to enter the trade.

The only reason to wait for a candle to close above the 38.3% fib line is because it is in between the 38.2%-50% lines for this example.

This process should not take very long, as our trend should continue upwards because of the previous support level with the trend line.

In the above example, it illustrates these rules when the trend line meets the price level in these two zones.

*Note: If the price breaks below the 61.8% fib level in the example, then you will also need to wait for a candle to close above the 50% fib level.

The reason you always wait is that you do not want to get caught in a broken trend and end up getting stopped out.

Rule #7 Stop Loss Placement.

Your stop loss can vary based on what your charts are showing you. Look in the past for prior resistance or support.

In the example trade, the stop was placed in between the 50% and 61.8% fib line. For this trade, it just made sense because if it would have broken the 50% fib line, then the uptrend would have been invalidated. We want to get out of that BUY trade as quickly as possible.

It is always helpful to look in the past to determine a stop loss.

Fibonacci Retracement Channel Trading Strategy.

Before diving into the specifics, let’s look at what tools you need for the job for the Fibonacci Channel Trading Strategy:

Luckily, you only need one tool: the Fibonacci Channel Indicator: This indicator may look different for you depending on what Platform you are using (Tradingview, MT4, Tradestation, Ninjatrader). They all come standard on your platform. This is similar to the Fibonacci Retracement tool, only you can turn the FIB levels to the upside or to the downside.

This will allow you to make perfectly straight parallel lines on the support and resistance points on the uptrend or downtrend. Check out the “What Goes on at Support and Resistance” areas if you have no prior knowledge as to what this is.

Now let’s jump into the steps of the Fibonacci Channel Trading Strategy.

Our Fibonacci Channel Tool.

Fibonacci Channel Trading Steps.

Step #1 Find a Strong Down Trend/ Uptrend that is Forming.

This step is critical to get right. You need to find a strong current uptrend at this point. More often than not you will see this occur on a trend reversal. Not all the time, but a good portion of it. Take a look:

We saw here a nice uptrend before it broke the line of support and headed to the downside. At this point you need to continue to wait if the price will “bounce” off of a certain level and head back to the upside.

Note** Our Fibonacci tool is not in play yet. At this point, we are waiting for the price action to head back to the upside hit a “resistance” level and then heading back to the downside forming a “Channel”

Step #2 In a Down Trend, wait for price action to consolidate and head back to the upside.

Here is what it looks like:

Again, there is nothing here we are interested in trading. The price action needs to head back to the upside, consolidate, then we are ready for business for a sell entry.

Step #3 Wait for Price Action to “Hit a Ceiling”

Here is what this step will look like:

You can see in the chart above that I labelled each step of the Fibonacci channel trading strategy. Each step is colored. So at this point here is what has happened. Price action broke the main uptrend and then cause a long bearish trend (Step #1) Then, after consolidation, the price action went back to the upside (step #2) This uptrend continued for quite a while before finally consolidating again (step #3).

Step #4: Apply Fibonacci Channel Indicator.

I will walk you through where to place this. You already did most of the work already following Steps 1-3, so this step should be very simple.

Place the Fibonacci Channel Indicator on consolidation #1 and Consolidation #2 in the direction of the channel.

Once you do this, congrats! It’s now time to search for a trade….

After it shows you one more thing to confirm that this is indeed a channel.

Step #5: Wait for the Price action to Push Down and Pull Back. (Make Entry After Pull-Back)

Here is what this looks like:

Great! Do you see that on the pullback it hit our channel line? That is exactly what you want to see!

Here are all the steps so far:

Take a minute and study the picture above. There is a lot to digest there!

These are the main five steps it takes to make a SELL entry based on this strategy. Simply follow each step by their color and you got your first entry!

Sell Entry #1 and Entry #2.

So you already know where to enter the first trade.

You want to press your winners with this strategy so when the price action hits the 50% mark of the Fibonacci Channel indicator you make a second entry!

So at this point, you have two trades on, both in profit.

Take Profit/Stop Loss.

When the price action hits the 100% Fibonacci channel line you drew you will close both trades immediately, no exception!

This is the other support level. When the price hits this level there any many things that could happen (Mostly bad)

You see, a lot of buyers know this level, so they have BUY entry orders sitting at the 100% line of that channel. Once price action hits that level it’s going to trigger all of those buy entries (along with many sellers getting out) and this is what’s going to happen most likely:

You want to use a trailing stop loss. So as the price moves down you will be moving you stop loss accordingly. There are advantages and disadvantages to using a trailing stop. Our team tested a few different methods with this strategy and agreed that a trailing stop loss is the way to go with the Fibonacci Channel Trading Strategy.

Here is what I would look like during the trade.

Once the Price actions touch the 50% Fib line and we added a second entry, go ahead and move your stop loss to your first entry at the 38% Fib Line. This will lock in some profit in case the price action decides to turn on you and head to the upside!

Once the Price action touches the 78% Fib line move both stop losses to the 50% Fibonacci line. This will lock in profit for the first trade and you will break even on the second trade! You still win either way.

Like I said before, you exit both trades immediately when the 100% fib. line is touched!

Note** The above was an example of a sell trade using the Fibonacci Channel Strategy. Use the exact same rules (only opposite) for a BUY entry.

Below is a BUY trade example using the Fibonacci Channel Strategy:

Conclusion- The Complete Guide to Fibonacci Trading.

Now that you know all about Fibonacci Retracement levels and their applications for different trading strategies, don’t be afraid to put them to use, and tell us what you think of the article above! Have you traded these pairs in the past?

Do you currently trade them? What is YOUR reason for perhaps not trading them? Let us know down below in the comments section! If you enjoyed this Free Educational Article, then I would appreciate it if you would share it with others! Thanks!

Have a great weekend! And wish you good trading next week! We will take a look at what kind of effect NFP had on the weekly price action on Monday.

Thank you for reading!

Please leave a comment below if you have any questions about Fibonacci trading strategies.