Forex Trading Strategies - Time Entries Using Fibonacci
Struggling to choose a trading strategy?
“Trading strategy” – one of the most searched terms for any beginner trader. Or the trader who has been trading for years on end, burning the midnight oil just to see the end of the tunnel where they hoped to find some light… but all they found was a negative expectancy.
Sound familiar? I KNOW!!! I would also be pulling my hair out thinking ‘maybe this isn’t for me’ and ‘maybe my parents were right, maybe I should go to college’ or worse ‘maybe I should get that job my wife has been begging me to get!’
Look I don’t blame you. Trading is a journey and I will be honest the first step is finding a trading strategy that works for you and a trading strategy that has a POSITIVE expectancy, for all my backtesting traders – you know what I mean!
A lot of traders just jump into the markets without doing some form of backtesting to see if the trading strategy they have chosen to use would even work. Not only in our current market conditions but also with the different pairs they trade.
Yes, that’s right. You may find that your trading strategy only works for GBPNZD, EURUSD, AUDJPY and maybe a few others. But the journey to learning may be an excruciating and time-consuming one. Why would it be painful? You might ask.
Well if you decided to jump right in with your hard-earned more, you could lose it all. Interestingly enough, 96% of traders lose all their money the first time they trade the live markets and roughly the same amount then give up after 3 months of trying.
Now, here’s the thing, giving up after 3 months doesn’t give you an accurate sample size to look back on and say to yourself that you have genuinely tried EVERYTHING and nothing has worked. And right now you may be mad and saying; “well I don’t have all the time in the world!’’ that would be sad because the average trade takes anywhere between 3 and 7 years to become a consistently profitable trader. Keyword, CONSISTENTLY.
Fibonacci and candlestick info
There are thousands of strategies to try out and observe for yourself. In this article, we are going to explore our imagination and remember the mathematical sequences we hated so much, the shapes that we had to cut out in school that now create patterns in the markets and more importantly we are going to look at candlestick information.
All candlesticks tell a story and all together they create a beautiful picture. Today I am going to go through a simple but effective trading strategy that I have used and continue to use from time to time. However just to name a few strategies before going into it there are: Breakout strategies, reversal strategies, trend strategies, channel strategies and more.
Now let us get into it! Below is a chart of USDCHF on the weekly timeframe.
(Source – TradingView)
Now before any of you go over to our forum and start saying this man is crazy what nonsense is this? Why we looking at the weekly and what are we going to do here? Let me tell you. So we look at the weekly time frame in this trading strategy to understand the bigger picture and where the market could move to. We also draw support and resistance zones on this timeframe or for more fancy terminology; levels of liquidity…
I know right, trading strategies come with their own lingo too. And disclaimer there are only 2 levels drawn in because those are the areas I was focused on, usually, you want to draw in all your KEY LEVELS (defined as levels on your chart where you would have an increased amount of buyers or sellers, which accelerates the movement of price as well as increases volatility within a market).
Why the bigger picture matters!
You may ask why the bigger picture is so important. This is because it shows us as traders DIRECTION.
Next, we look at the Daily timeframe.
(Source – TradingView)
Firstly, I must mention, look at how those levels were respected for some time and how price may have broken through, retested and disappeared or bounced off of it. We might think that was magical, somewhat like pulling a rabbit out of a magician’s hat. But no it isn’t. It is very simple!
On the daily timeframe, we now look to use the Fibonacci retracement tool, which is an indicator that helps tell us where price may go or turn from. Now please don’t think it’s all THAT SIMPLE because this indicator may also be used wrong. Understanding the levels is important to your success.
You can head over to YouTube and find out more about Fibonacci use in trading strategies. For illustration though, in this example price turned at the 78.6 level which interestingly enough there is a strong level of resistance… hmm could there be something there??
Go do some research!! And maybe just maybe we could go all the way to a certain level too. Now know this, this is only 1 of the hundreds of ways you can use the Fibonacci tool in a trading strategy.
Lastly for this trading strategy illustration, we will have a look at one more, lower timeframe and that is the 4 hourly timeframe. The only difference is that this is a close up of this chart.
At this point in the trading strategy we look for entries, within any part of that purple box, and the rest requires patience. So what exactly are we looking for? We are looking for candlestick information. Remember I said candlesticks tell a story?!
So we would look for a reversal signal at this point; morning starts, dojis, haramis, shooting starts, whatever the case may be and all depending on the direction we are trading in. From here you hopefully are able to sit back and watch the trade play out.
And that’s it for this trading strategy! Hoping you get the hang and learn a could of other tricks to test on the charts. Wishing you all successful trading.
Let’s catch more TP’s and less SL’s!!