FIBONACCI TREND LINE STRATEGYThere are multiple ways to trade using the Fibonacci Retracement Tool, but one of the best ways to trade the Fibonacci is by using it with trend lines.
Trading Tools for Fibonacci Trend Line Trading Strategy
1. Fibonacci Retracement
2. Trend lines
Rule #1 Find a Trending currency Pair
Rule #2 Draw a Trend Line
Rule #3 Draw Fibonacci From Swing low to swing High
Rule #4 Wait for Price level to Hit Trend Line
This rule is the critical step to the strategy so you need to pay close attention.
Because we need the price 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.
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)
Once the price hit our trend line that we drew and we saw that this was in between 38.2-61.8 lines then our trade is 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.
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/below the 50% line to enter the trade.
The only reason to wait for a candle to close above the 38.3% fib line was because it was 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 with the trend line.
The reason you always wait, is because 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 you charts are showing you. Look in the past for prior resistance or support.
