A short sale
Shorting the market using Fibonacci tools involves identifying key retracement and extension levels that can act as resistance points where the price could bounce and continue its downtrend. Here is a basic approach to doing so:
### 1. **Identify the Main Trend**
Before using Fibonacci, you need to make sure that the market is in a downtrend. This can be determined by looking at descending highs and lows on a time frame relevant to your trade (e.g. H1, H4 or daily).
### 2. **Plot the Fibonacci Levels**
Once you have identified a significant down move (a swing high to a swing low), plot the Fibonacci levels from the highest point of the swing (high) to the lowest point of the swing (low).
### 3. **Identify Retracement Levels**
The most commonly used Fibonacci retracement levels are 38.2%, 50%, and 61.8%. In a downtrend, these levels act as potential resistance zones where price could retrace before continuing to fall.
### 4. **Look for Confirmation**
Before entering a short sale, look for additional confirmations such as:
- **Candlestick patterns:** Bearish candles at retracement levels.
- **Technical indicators:** Divergence on RSI, overbought Stochastic, or a bearish crossover on MACD.
- **Horizontal Resistances:** Price levels where rejection has previously been observed.
### 5. **Enter the Trade**
If price reaches one of the Fibonacci retracement levels and shows signs of rejection or confirmation of bearish continuation, you may consider opening a short position.
- **Example:** If the price pulls back to the 61.8% level and forms a bearish candlestick pattern such as a bearish engulfing, you could open a short position.
### 6. **Set Stop Loss**
Place a stop loss above the immediate higher Fibonacci level or near the last significant high. This protects you in case the price fails to respect the Fibonacci level and continues to rise.
### 7. **Define Profit Targets**
Use Fibonacci extensions to define your profit targets. Common extension levels are 127.2%, 161.8%, and 200%. These levels will give you an idea of where the price could go after breaking the original swing low.
- **Example:** If you draw a Fibonacci extension and the 161.8% level coincides with a previous support, you could set that level as your exit target.
### Practical Example:
1. **Identification:** You see a downtrend and mark a swing high at 2000 and a swing low at 1900.
2. **Fibonacci Retracement:** You draw Fibonacci levels and the 61.8% is at 1975.
3. **Confirmation:** Price retraces to 1975, forms a bearish engulfing candle, and the RSI shows overbought.
4. **Entry:** You sell short at 1975 with a stop loss at 1985 (above the 61.8% retracement level).
5. **Exit:** You set your profit target at the 161.8% extension level at 1875.
This is a basic example and should be adapted to the market context and personal strategy. It is always important to manage risk properly in any trade.
### 1. **Identify the Main Trend**
Before using Fibonacci, you need to make sure that the market is in a downtrend. This can be determined by looking at descending highs and lows on a time frame relevant to your trade (e.g. H1, H4 or daily).
### 2. **Plot the Fibonacci Levels**
Once you have identified a significant down move (a swing high to a swing low), plot the Fibonacci levels from the highest point of the swing (high) to the lowest point of the swing (low).
### 3. **Identify Retracement Levels**
The most commonly used Fibonacci retracement levels are 38.2%, 50%, and 61.8%. In a downtrend, these levels act as potential resistance zones where price could retrace before continuing to fall.
### 4. **Look for Confirmation**
Before entering a short sale, look for additional confirmations such as:
- **Candlestick patterns:** Bearish candles at retracement levels.
- **Technical indicators:** Divergence on RSI, overbought Stochastic, or a bearish crossover on MACD.
- **Horizontal Resistances:** Price levels where rejection has previously been observed.
### 5. **Enter the Trade**
If price reaches one of the Fibonacci retracement levels and shows signs of rejection or confirmation of bearish continuation, you may consider opening a short position.
- **Example:** If the price pulls back to the 61.8% level and forms a bearish candlestick pattern such as a bearish engulfing, you could open a short position.
### 6. **Set Stop Loss**
Place a stop loss above the immediate higher Fibonacci level or near the last significant high. This protects you in case the price fails to respect the Fibonacci level and continues to rise.
### 7. **Define Profit Targets**
Use Fibonacci extensions to define your profit targets. Common extension levels are 127.2%, 161.8%, and 200%. These levels will give you an idea of where the price could go after breaking the original swing low.
- **Example:** If you draw a Fibonacci extension and the 161.8% level coincides with a previous support, you could set that level as your exit target.
### Practical Example:
1. **Identification:** You see a downtrend and mark a swing high at 2000 and a swing low at 1900.
2. **Fibonacci Retracement:** You draw Fibonacci levels and the 61.8% is at 1975.
3. **Confirmation:** Price retraces to 1975, forms a bearish engulfing candle, and the RSI shows overbought.
4. **Entry:** You sell short at 1975 with a stop loss at 1985 (above the 61.8% retracement level).
5. **Exit:** You set your profit target at the 161.8% extension level at 1875.
This is a basic example and should be adapted to the market context and personal strategy. It is always important to manage risk properly in any trade.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.