Market Direction - Trend StrengthThe strength of a trend can be a key factor in predicting future price movements. This post will specifically cover how to identify trends, how to determine trend strength, and how to use it to your advantage when trading the markets.
Characteristics of a Trending Market
To begin, let us understand how to identify a trending market.
A trending market is a market that is either making higher highs followed by higher lows (UPTREND) or lower lows followed by lower highs (DOWNTREND).
What does this typically look like? Let's see:
Uptrend
Downtrend
Now that we understand how to identify uptrends and downtrends, let's delve further and discuss how to use trend strength to your advantage when trading the markets.
Fibonacci Retracement Tool
The Fibonacci retracement tool is used in trending markets to determine how strong the trend is. It uses natural numbers to determine the high-probability price levels that the market will hit and continue in its initial direction. This method will use four Fibonacci levels: 38.2%, 50%, 61.8%, and 78.6%.
One thing to mention is that in a trending market, the chart is made up of two waves: impulsive and retracement. After an impulsive wave, a retracement wave will usually form; after a retracement wave, the impulsive wave will usually form.
The impulsive wave represents the strong momentum of buyers and sellers. The retracement wave shows the weakness of buyers and sellers.
Therefore, we must look at the retracement wave when it comes to deciding the strength of a trend. For example, in an uptrend, the impulsive wave will be bullish; therefore, the retracement wave will be bearish. In a downtrend, the impulsive wave will be bearish; therefore, the retracement wave will be bullish.
The retracement wave shows the strength of the opposite side of the market. For example, if the impulsive wave is bullish, buyers are stronger. Then, in the retracement wave, sellers will try to dominate the buyers.
Therefore, the deeper the retracement goes, the stronger sellers will be than buyers, and the weaker the bullish trend strength will be.
With the Fibonacci retracement tool, there are three scenarios to determine trend strength:
Strong Trend Strength: 38.2% Fibonacci Retracement
Moderate Trend Strength: 50%–61.8% Fibonacci Retracement
Weak Trend Strength: 78.6% Fibonacci Retracement
The above examples show why the Fibonacci retracement tool can be extremely effective in determining not only how strong a trend is, but also how likely it is to continue past the beginning of the impulsive wave.
Bollinger Bands
Bollinger Bands are very effective in reading trend strength. Bollinger Bands are based on price volatility, which means that they expand when the market is trending and there are big prices, and they contract during sideways consolidations when the market ranges.
Bollinger Bands consist of two outer bands (top and bottom bands) on each side and a moving average in the centre between the outer bands (middle band).
One of the main reasons Bollinger Bands are so effective in reading trend strength is that they do not lag as much as other indicators because they always change automatically with the price.
Three important points to note when using Bollinger Bands to read trend strength:
If price pulls away from the outer band and heads towards the middle band as the trend continues, this is a key indication that the trend strength may be weakening.
During strong trends, prices stay close to the outer band and significantly away from the middle band.
Repeated pushes into the outer bands that do not actually reach the band indicate a lack of trend strength.
Let's see a chart example of Bollinger Bands reading trend strength:
As you can see, using Bollinger Bands can provide traders with very useful information about trend strength and the balance between bulls and bears.
Price Rejection
We do not always need indicators or tools to read trend strength; it is possible to do this just by looking at a naked chart. The way rejected continuations or reversals happen on charts can be a huge indicator of being able to read trend strength. Before understanding the price rejection, it is important to know about the wick or shadow of the candlestick.
Upper wick
The upper shadow shows that the price went up and then came down again. This indicates that buyers wanted to increase the price, but sellers dominated the buyers to push the price back down.
Lower wick
The lower shadow represents that the price went down and then came back up. This indicates that sellers wanted to lower the price, but buyers dominated the sellers to push the price back up.
Identifying price rejection
Traders should first wait for the price to reach a strong support or resistance level. Then, at the support or resistance level, candlesticks will likely make wicks opposite the trend due to the strength of the level. For example, wicks or shadows will form on the upper side at the resistance zone, while at the support zone, wicks or shadows will form on the lower side of the candlesticks.
These wicks or shadows are identified as price rejections in the market.
Price rejections are very important, especially in identifying trend strength, because they accept or reject the identification of key levels in the market. For example, if you are unsure whether a support zone will hold or break, you can see whether price rejection will occur at that level.
Let's see a chart example of price rejection and how you can use it to identify trend strength:
The chart above is proof alone that trend strength can be identified by just looking at the price action of a chart.
Understanding the strength of a trend does not have to be complex. Trend strength can be identified simply by using the three different techniques we have covered in this educational post.
The best thing we can all do as traders is to be simplistic and not overcomplicate things; this becomes especially easier when you accept that nothing in the market is certain.
Each market has its own unique market conditions and will not trade rationally all of the time. Therefore, when a trade does not go your way even though your trend strength signals were high and you followed the market, understand that it is just one trade and that the market is completely neutral. It is neither personally on your side nor personally against you.
Trade safely and responsibly.
BluetonaFX
Fibonacci Retracement
HOW TO: Lesson 1 - Be an an Artist - Video SeriesLesson 1: Be an Artist explains the following topics:
Timeframe Significance
Price Location Significance
Drawing Support / Resistance
Drawing Fibonacci Retracement – Significant Levels
Trading the Extension PullbackThe key is to count the waves correctly. Once we have an extension, we can use the Fibonacci tool to validate and set our entry traps.
Enjoy.
What Is Swing Trading?Are you looking for a way to take advantage of short-term market movements without the stress of day trading? Look no further than swing trading. In this article, we’ll dive deep into the world of swing trading, exploring how it differs from day trading, discussing its advantages and disadvantages, and taking a look at some of the most popular swing trading tools and indicators.
The Basics of Swing Trading
Swing trading involves holding a position for a short to medium period of time - usually a couple of days to a few weeks - with the aim of profiting from the “swings” in the market. A swing trader’s definition is simple: swing traders are those who typically enter and exit at significant support and resistance levels, hoping to capture the bulk of an expected move and take profits at potential reversal points in the market.
The swings are marked with numbers in the chart below.
These traders tend to look at hourly to weekly charts to guide their entries, although the specific timeframe used will depend on the swing trader’s individual style and the asset being traded. It can be used across all asset classes, from stocks and forex to crypto* and commodities. Swing plays in the stock market can be especially effective, as stocks tend to experience plenty of volatility and are subject to frequent news and events that can drive prices to traders’ targets.
Swing traders predominantly use technical analysis to determine their entries and exits, but fundamental analysis can also play a significant role compared to shorter-term styles, like day trading. Fundamental analysis, like comparing the interest rates of two economies, can help to set a swing trader’s directional bias over the course of days or weeks.
Swing Trading vs Day Trading
On the face of it, swing trading and day trading may look similar. After all, both types of traders may look to profit from one key support/resistance level to another. However, there are significant differences between them.
The most distinct difference is the holding period. Day traders aim to close all of their positions by the end of the day and tend to exit a trade within a few hours. It’s rare for swing traders to hold a position for less than a day, although it can happen if their target is met during extreme market volatility. Long-term swing trading can involve holding a position for months - something you won’t see any day trader doing.
This difference in holding period has important implications for risk management. Day trading can be riskier than swing trading, as day traders are exposed to more volatility and are more susceptible to sudden price movements. Swing traders, on the other hand, have more time to react to changes in the market and ignore intraday noise in favour of focusing on their longer-term target.
However, because day traders don’t hold their positions overnight, they also avoid the risk of any adverse events affecting their position while they’re asleep. Swing traders don’t have this luxury.
The frequent in-out nature of day trading means active traders can incur more commission fees than swing traders. Spreads are also less of a concern when swing trading, as wide intraday spreads impact a swing trader’s position less than they impact the position of a day trader.
Finally, the psychological and time pressures are reduced when swing trading. Day trading can be a highly stressful activity, and it requires near-constant attention to the charts. Swing trading can be a much more relaxed approach, avoiding the stresses of intraday price movements and allowing for much less active management.
Swing Trading Advantages and Disadvantages
Swing trading has several advantages that make it a popular choice for many traders. That said, it comes with a few disadvantages traders should be aware of. Let’s consider them.
Advantages
- Lower Time Commitment
One of the biggest benefits for swing traders is the reduced time commitment. Many of us have other things going on that mean we can’t commit several hours a day to trading. Swing trading can be adapted to suit a trader’s individual schedule and may only require a few hours each week to be successful.
- Flexibility
Swing trading is often more flexible than other styles of trading. Not only does it offer time flexibility, but it allows for a wider range of instruments to be traded. For example, you might have trouble performing technical analysis on the 1-minute chart for an illiquid stock, while the 1-hour chart has plenty of price action for you to analyse. In the stock market, swing trading may even be preferred because of the greater number of opportunities it can present.
- Potential Higher Returns Than Long-Term Trading
Because swing traders usually hold positions for a few days to a few weeks, they have the ability to take advantage of shorter-term market movements that might not be reflected in longer-term price trends. For instance, if a stock experiences a temporary dip in price due to a short-term event, swing traders can take advantage of this dip and make a quick profit when the stock rebounds.
Disadvantages
- Less Time to React to Market Changes
What is a swing trader’s biggest disadvantage? The amount of time they have to react to sudden price movements. Short-term traders that are actively managing their positions may be able to stay out of a position entirely until volatility subsides. In contrast, swing traders may not be available to adjust their position if they’re at work or asleep, leading to potentially significant losses.
- Overnight Holding Risks
Part of the issue with holding trades overnight is that they can gap up or down - opening much higher or lower than the previous day’s closing price, which could mean a stop loss isn’t triggered. This can result in large losses beyond what the trader was initially willing to risk.
- Requires Discipline to Hold Trades
Holding a position for several days or weeks can be tough for some traders. Intraday market movements may lead to impulsive decision-making, like closing a trade prematurely or taking a loss because of a perceived change in market direction. To weather these short-term price movements, swing traders must have the discipline to manage their emotions and only check the charts infrequently.
Popular Tools to Use When Swing Trading
A swing trader’s strategy will ultimately depend on their unique system for entering and exiting trades. There’s no right or wrong way to swing trade; the most important aspect is finding an edge over the market and achieving long-term profitability. Here are three common tools and indicators that can be used as part of a swing trading strategy.
Channels
Traders can use channels to take advantage of long-term price trends that play out over days and weeks. To plot a channel, you first need to identify a trending asset that’s moving in a relative zig-zag pattern rather than one with large jumps in price. Swing traders will often use the channel to trade in the direction of the trend; in the example above, they might look to buy when the price tests the lower line and take profit when the price touches the upper line of the channel.
Moving Averages
Moving averages are one of the simplest indicators, but they can help swing traders determine the direction of the trend at-a-glance. The options here are endless:
- You could pair fast and slow moving averages (MAs) and wait for the two to cross; this is known as a moving average crossover. When a shorter MA crosses above a longer one, the price is expected to rise. Conversely, when a shorter MA breaks below a longer one, the price is supposed to decline.
- You could stick with one and observe whether the price is above or below its average to gauge the trend. When the price is above the MA, it’s an uptrend; when it’s below the MA, it’s a downtrend.
- You could use an MA as a support or resistance level, placing a buy order when the price falls to the MA in an uptrend and a sell order when it rises to the MA in a downtrend.
In this equity swing trading example, we’ve applied the Exponential Moving Average (EMA) Cross indicator with a 50 and 200-period length in TickTrader. As you can see, it was valuable for identifying the direction of the S&P 500 over the course of several weeks and could have resulted in a profitable swing call.
Fibonacci Retracements
Lastly, many swing traders look to enter pullbacks in a larger trend. One of the most popular ways to identify optimum entry levels during these pullbacks is with the Fibonacci Retracement tool. Traders typically wait for a shift in price direction, then apply the tool to a swing high and swing low. Then, they enter at a pullback, usually to the 0.5 or 0.618 levels, to profit from the continuation of the trend. As seen above, this strategy can offer ideal entry points for swing traders looking to get in early before a trend continues.
The Bottom Line
In summary, swing trading can be an ideal style for many would-be traders out there. Rather than spending hours in front of the screen each day, swing traders can take a more laid-back approach. However, while solid risk management skills and iron-clad discipline are necessary characteristics for any trader, they’re even more important for swing traders.
Ready to embark on your swing trading journey? You can try a free demo account with us at FXOpen to practise your skills and start building a strategy. Good luck!
*At FXOpen UK and FXOpen AU, Cryptocurrency CFDs are only available for trading by those clients categorised as Professional clients under FCA Rules and Professional clients under ASIC Rules, respectively. They are not available for trading by Retail clients.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
📈 Fibonacci Power in Uptrends📍 What Are Fibonacci Retracement Levels?
Fibonacci retracement levels—stemming from the Fibonacci sequence—are horizontal lines that indicate where support and resistance are likely to occur.
Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. While not officially a Fibonacci ratio, 50% is also used.
The indicator is useful because it can be drawn between any two significant price points, such as a high and a low. The indicator will then create the levels between those two points.
📈 To effectively trade Fibonacci retracements during an uptrend and strategically enter the market during pullbacks, follow these steps:
🔷Identify the uptrend: Determine the presence of a clear upward price movement.
🔷Apply Fibonacci tool: Utilize the Fibonacci retracement tool to identify potential retracement levels within the uptrend.
🔷Focus on pullbacks: Wait for the price to experience a pullback or retracement within the uptrend.
🔷Assess Fibonacci levels: Analyze the price's interaction with key Fibonacci levels, such as the 61.8% or 65% zone, to identify potential support or resistance areas.
🔷Higher highs confirmation: Look for the formation of higher highs after the price touches a Fibonacci level, indicating a continuation of the uptrend.
🔷Entry opportunity: Consider entering the market after a pullback when the price resumes its upward movement, using appropriate risk management strategies.
By combining the power of Fibonacci retracements, recognizing pullbacks in uptrends, and waiting for higher highs, traders can position themselves to capitalize on the potential profit opportunities offered by the market.
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Introducing the Dual Dynamic Fibonacci Retracement IndicatorHey there, Stock Justice here. Today, I walked you through using the Dual Dynamic Fibonacci Retracement Levels Indicator on TradingView. This powerful tool calculates pivot points and determines Fibonacci retracement levels based on your position in the market. I explored every input, from lookback periods to toggling extra levels, to shifting and extending lines. We also delved into the use of two sets of Fibonacci levels to identify areas of confluence for more robust trading decisions. With vivid colors marking each retracement level and the flexibility to modify the lookback period, this indicator is a game-changer for pinpointing support, resistance, potential reversals, and continuations. Remember, the magic is in the details. Happy trading!
From A to D:How to Use the ABCD Pattern to Forecast Market MovesAre you familiar with the ABCD trading pattern?
In this article, I will provide a comprehensive explanation of the ABCD trading pattern, including its characteristics, how to identify it, and how to use it in trading. So, sit back, relax, and enjoy the information provided in this article.
The ABCD ( AB=CD ) pattern , It's a harmonic pattern that is easily recognizable on a price chart and is composed of four points. This pattern follows a specific sequence of market movements that traders can use to predict potential price swings in the future. The ABCD pattern can be applied in various market conditions, including both bullish and bearish markets, and can be used to speculate on the movement of different forex pairs by simultaneously selling one currency and buying another. However, it's important to keep in mind that the ABCD pattern should not be the sole basis for making trading decisions. It should be used as a tool to inform your decisions.
The first step in opening a position using the ABCD pattern is to identify the pattern on a price chart. Multiday charts can provide insight into the behavior of forex markets over an extended period. You can use daily, hourly, or minute-by-minute charts to spot the pattern, but it's crucial to choose a time horizon that aligns with your goals. For instance, traders looking to hold positions for days or weeks may prefer daily charts instead of minute charts.
Once you have selected the appropriate chart type, you can search for the ABCD pattern to identify bullish or bearish signals.
Let's now take a closer look at how the AB=CD pattern forms and how to spot it:
When identifying the ABCD pattern, traders focus on the legs or moves between points. The moves in the direction of the overall trend are denoted as AB and CD, while BC represents the retracement.
Once you think you have identified an ABCD pattern on a price chart, the next step is to use Fibonacci ratios to validate it. This process can also help you pinpoint where the pattern may complete and where to consider opening your position.
The "classic" ABCD pattern follows a specific sequence of market movements, with the following rules:
In a "classic" ABCD pattern, the BC line should ideally be 61.8% or 78.6% of AB. To determine this, traders often use the Fibonacci retracement tool on the initial move from point A to point B. The BC line should end at either the 61.8% or 78.6% Fibonacci retracement level of AB. This helps confirm the validity of the ABCD pattern and gives an idea of where to potentially open a position.
Once the BC leg of the pattern is complete, traders would typically look for the CD leg to reach the 127.2% or 161.8% extension of the BC leg. At this point, traders might consider entering a sell position if the pattern is bearish or a buy position if the pattern is bullish.
The ABCD pattern extension occurs when the CD leg extends beyond the typical 127.2% and reaches 161.8%. This indicates that the price trend may continue in the same direction for a longer period, providing a potentially profitable trading opportunity for traders who have correctly identified the pattern. It's important to note that this extension is not always reliable and should be used in conjunction with other technical analysis tools to confirm the validity of the trade.
Note: In strongly trending markets, the retracement (BC) may not reach the usual 61.8% or 78.6% of AB, but only 38.2% or 50%. It's important to adapt to market conditions and adjust your analysis accordingly.
Moreover:
During the move from A to B, the market should not exceed either A or B.
During the move from B to C, the market should not exceed either B or C.
During the move from C to D, the market should not exceed either C or D.
For a bullish ABCD, point C must be lower than A, and D must be lower than B.
For a bearish ABCD, point C must be higher than A, and D must be higher than B.
To identify an ABCD pattern on your TradingView trading chart, follow these six steps:
1 ) Log in to your TradingView trading account and open a market chart.
2 ) Locate the AB line. Remember that this move should be completely contained within points A and B.
3 ) Locate the BC retracement. This should reach either the 61.8% or 78.6% level of the move from A to B.
4 ) Draw the CD line. Using the AB and BC lines, you should be able to predict where point D will fall. CD will generally be equivalent to AB and either 127.8% or 161.8% of BC in both price and time.
5 ) Keep an eye out for price gaps and wide-ranging bars in the CD leg. These can indicate that an extension is forming, implying that CD may be longer than AB.
6 ) Trade the possible retracement at point D. If you've identified a bearish ABCD pattern, consider opening a sell position. On the other hand, if you've found a bullish one, consider buying.
And here are a couple of examples:
I hope you found this guide on identifying the ABCD pattern useful. Let me know your thoughts in the comments section below, and don't forget to like and follow me if you found this guide helpful.
How to Use Fibonacci RetracementsIf you’re wondering how to trade Fibonacci retracements, you’re in the right place. Today, we’ll be breaking down why traders use Fibonacci retracements and how you can apply them in your own trading, and we’ll list our top tips for making the most out of Fibonacci trading.
The Fibonacci Sequence for Trading
Fibonacci retracements make use of the Fibonacci sequence and the resulting Golden Ratio. Simply put, the Fibonacci sequence is a mathematical concept that starts at 0, then 1, with each following number being the sum of the previous two. It goes 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so on.
What we’re interested in is the relationship between the numbers. For example, one number in the sequence divided by the next, like 13/21, will always roughly equal 0.618 (the Golden Ratio). In the case of 13/21, it’s 0.619. As the sequence progresses, the ratio moves closer to 0.618. There are other calculations that we won’t discuss here, but they also give us complimentary ratios of 0.236, 0.382, and 0.786.
Notably, traders typically pay the most attention to the 0.382 and 0.618 ratios. 0.5 is also commonly used, despite not being a true Fibonacci ratio. When using Fibonacci patterns while trading, these ratios are typically expressed as percentages, such as 38.2%, 50%, and 61.8%.
Applying the Fibonacci Numbers to Trading
While these ratios are most often applied to Fibonacci retracements, there are actually quite a few ways to use them. Fibonacci extensions, fans, spirals, channels, and arcs are all advanced techniques commonly used by professional traders.
The Fibonacci ratios are also fundamental to harmonic pattern trading. The ABCD , Gartley , and Bat patterns, amongst others, all use Fibonacci retracements and extensions. Once you get the hang of Fibonacci retracements, learning these patterns could be an excellent next step in developing your Fibonacci skills.
What Are Fibonacci Retracements?
Fibonacci retracements (also termed “fibs”) allow traders to quickly identify key support and resistance levels using the defined ratios. Thankfully, with the advent of charting software like TickTrader , traders no longer need to calculate these key price points manually. Instead, they can apply the visual Fibonacci retracement tool in just a few clicks.
Fibonacci retracements typically work best in trending markets. For example, the tool can be applied to significant swing highs and lows to find areas of support during an uptrend. Once the price cools off, it’ll often retrace to the 38.2%, 50%, or 61.8% levels before continuing the bullish trend.
Like regular support and resistance levels, you can think of the Fibonacci levels as areas of interest rather than a place where the price will reverse with pip-perfect precision. That’s why candlestick and chart patterns are commonly used in conjunction with Fibonacci retracements. Hammers, shooting stars, triangles, and wedges can all provide you with extra confidence that these levels are likely to hold.
How Can Fibonacci Retracements Be Used?
Fibonacci retracements help traders to predict the levels the price might respect in the future. Given their predictive nature, they can help you determine optimal entry points, stop losses, and price targets when trading in the forex market . Fibonacci retracements can be used across all timeframes, from 1-second to monthly charts, thanks to the fractal, or self-repeating, nature of the Fibonacci sequence.
Using Fibonacci Retracements for Trading
Getting to grips with the Fibonacci retracement tool is easy. There are just two key rules to remember:
If you’re looking for support levels, set the first point at a significant swing low and the second at a significant swing high.
If you’re looking for resistance levels, set the first point at a significant swing high and the second at a significant swing low.
Let’s take a look at a few examples. If you’d like to try your hand at using Fibonacci retracements, you can use the TickTrader platform offered by FXOpen . You can gain access to live charts and use the built-in Fibonacci retracement tool to get started in minutes.
AUD/USD
We can see AUD/USD on the weekly chart following the 2008 financial crisis. After recovering and putting in months of bullish structure, our swing high and low points have formed. Notice that, upon touching the 38.2% area, the price attempted to close below but was rejected three times, giving us three long wicks. This rejection was an opportunity for traders to identify that further bullishness was inbound, which could’ve influenced their lower timeframe decision-making.
XBR/USD
In this example, Brent Crude Oil has shown signs of bearishness on the 15-minute chart, breaking support and making a lower low. By taking the high and low of this bearish move, we can see that the 61.8% area posed significant resistance, offering two bearish candles that indicated that the price wanted to move lower. Additionally, this area also lines up with a level of support-turned-resistance at 61.8%, giving traders extra confirmation that the area could hold.
GBP/USD
In the chart above, GBP/USD struggled to maintain any bullishness on the daily chart, continually making lower highs and lower lows. By using the most extreme swing low, we can see that a retracement to the 50% area gave traders a chance to get in shortly before a further breakdown. Interestingly, note that the 23.6% level acted as a support before the swing low had even formed. Subsequently, it also offered traders an opportunity to get in on the retest on that level before the price moved lower.
Tips for Using Fibonacci Retracements in Your Trading System
Despite their simplicity, there are a few nuances to learn that can help you when trading Fibonacci retracements.
They’re Not a Silver Bullet
As with any trading tool, using Fib retracements won’t suddenly make every trade you take a winner. It’s merely a predictive tool that can help guide your trades, and it should be used alongside other forms of technical analysis to increase your chances of success.
Wait for Closes to Determine Whether an Area is Suitable to Trade
To ascertain whether an area is holding or not, traders will typically look at the strength of the reaction from the zone. If the price closes through the level cleanly without producing long wicks, then it’s less likely that it’ll reverse. In contrast, if the price is continually rejected and seems to be struggling, then it’s more likely to reverse.
Stick to Your Chosen Timeframe
Related to the last point, use the same timeframe on which you set the Fibonacci retracement to determine whether the area is likely to reverse. If you set it on the 1-hour chart, then look at how it closes on the same timeframe. While tempting, if you switch to the 15-minute or 5-minute charts to see how the price is reacting, it’s likely to provide contradictory signals that will only complicate your analysis.
Be Aware of Higher Timeframe Trends
As with many aspects of trading, it’s always best practice to be cognisant of the higher timeframe trend and trade in harmony with it. For example, if the trend on the daily chart is bullish, looking for bearish retracements to go long on the 4-hour and 1-hour charts will likely yield better results than trying to trade a counter-trend.
Your Next Steps for Creating a Fibonacci Retracements Strategy
If you’re wondering how to create a Fibonacci trading system, you can:
1. Spend some time experimenting with the Fibonacci retracement tool on historical price charts.
2. Apply Fibonacci retracements to live charts and revisit them to discover how the price reacted at the key levels.
3. Once you feel you have a decent understanding of how to use Fibonacci retracements, you can open an FXOpen account and use a free demo account to test them in live markets.
4. Take notes of what works and what doesn’t, and begin to formulate a trading strategy.
5. Experiment further with indicators you’re familiar with to see if they can provide extra confirmation for your trades.
6. Continually practise and refine your strategy until you’re ready to use it for real. Don’t forget risk management.
7. Learn more about Fibonacci trading and keep refining your strategy until you’re happy with it.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
HOW TO USE FIBONACCI LIKE A PRO #part1Hi there! Bolu here
The Fibonacci tool is one of the most popular tools on trading view and many traders use Fibonacci on their charts.
FIBS are a major part of my trading system as you can see on this chart, i use it all the time, as I have to know what structure is saying on major and minor structure to aid my analysis and entry/exit confirmations.
I will be sharing how I use my FIBONACCI tool in this post and you can take some notes and add to your trading plan if you want.
BASICS OF FIBONACCI
In mathematics, the Fibonacci sequence is a sequence in which each number is the sum of the two preceding ones. Numbers that are part of the Fibonacci sequence are known as Fibonacci numbers, commonly denoted Fn . The sequence commonly starts from 0 and 1, although some authors start the sequence from 1 and 1 or sometimes (as did Fibonacci) from 1 and 2. Starting from 0 and 1, the first few values in the sequence are:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144.
The history of Fibonacci is all over the internet. My Job here is to show you how it can be used to your trading advantage.
I majorly use the FIB retracement & FIB extension tool. Trading-view provides a whole lot of other types of FIBs, but they are not a part of my trading system, so i only focus on what is relevant to my Trading plan by keeping it simple.
HOW TO USE THE FIBS
It is imperative to understand that Fibonacci retracement is a tool used to measure the retrace of a counter trend based on the current trend.e.g, After a downtrend formation, how far the correction would go would be measured with the FIBs.
while the Fibonacci extension tool is used to measure the 'length' of the continuation of that trend and is mostly used as Take profit levels
IT CAN ONLY BE USED IN A TRENDING MARKET. You need a valid Uptrend point or Downtrend point to draw out your FIBd]
Drawing out FIBs on the chart is a 3step process
STEPS TO DRAW FIBS
STEP 1 : SPOT A VALID BOS.
STEP 2 : IDENTIFY POINT A – POINT B OF THE IMPULSE MOVE .
STEP 3: DRAG FIB FROM THE HIGH TO THE LOW / LOW TO THE HIGH .
I changed the default settings that the FIBS came with on Trading-view and replace the numbers and colors.
Each FIB Percentage level means something unique on the charts and that helps with understanding what the trend is doing.
The retracement levels are used to see how strong the pullback phase is. Understanding the strength of the pullback is one of the most important things to know in the trend . I will probably make another post on 'Trend strength Analysis'..., You can put it in the comments if you would like to study it with me. Now, back to our FIBs.
Every FIB level is uniquely important and useful. The FIB Level that aligns with a key level of structure is High Probability.
In the Part 2 of this post, i would share the 'secret sauce' of the FIB retracement levels and how they can be used in both Major and Minor Structure.
Fibonacci Levels and How They Can Be Used in TradingGreetings, @TradingView community! This is @Vestinda, bringing you a helpful article on the topic of Fibonacci Retracements and how to effectively utilize them in your trading strategies.
Fibonacci retracement levels are helpful for traders and investors in financial markets. They're horizontal lines on price charts that can show where price may reverse direction.
These levels are based on the Fibonacci sequence, which is a series of numbers that occur in math and finance.
Use case:
The first thing to understand about the Fibonacci tool is that it is most effective when the market is trending.
In an upward trending market, traders commonly use the Fibonacci retracement tool to identify potential buying opportunities on retracements to key support levels. Conversely, in a downward trending market, traders may look for opportunities to short sell when the price retraces to a Fibonacci resistance level.
Fibonacci retracement levels are regarded as a predictive technical indicator because they attempt to forecast where the price will be in the future.
Based on the theory, when trend direction is established, the price tends to partially return or retrace to a previous price level before continuing to move in the direction of the trend.
How to Find Fibonacci Retracement Levels:
Fibonacci retracement levels can be found by identifying the key Swing High and Swing Low points of an asset's price movement. Once these points are established, you can use the Fibonacci retracement tool, which calculates the potential levels of support and resistance based on the ratios between the key points.
To apply the Fibonacci retracement tool, click and drag from the Swing Low to the Swing High in a downtrend, or from the Swing High to the Swing Low in an uptrend. This generates a set of horizontal lines at predetermined Fibonacci ratios, including 23.6%, 38.2%, 50%, 61.8%, and 78.6%.
Are you keeping up with me? ;)
Now, let's explore some examples of how Fibonacci retracement levels can be applied in cryptocurrency trading
The Uptrend:
In this instance, the Fibonacci retracement levels were plotted by selecting the Swing Low and Swing High points, which were observed on January 8th, 2021 at a price of $41,904.
The Fibonacci retracement levels were $33,521 (23.6%), $29,197 (38.2%), $26,114 (50.0%*), $23,356 (61.8%), and $19,925 (76.4%), as shown in the chart.
Traders anticipating that if BTC/USD retraces from its recent high and it will likely find support at a Fibonacci retracement level. This is due to the tendency of traders to place buy orders at these levels as the price drops, creating a potential influx of buying pressure that can drive up prices.
While the 50.0% ratio is not officially recognized as a Fibonacci ratio, it has nonetheless become widely used and has persisted over time.
Now, let’s look at what happened after the Swing High occurred.
Price bounced through the 23.6% level and continued to fall over the next few weeks.
Two times tested 38.2% but was unable to fall below it.
Subsequently, around January 28th, 2021, the market continued its upward trend and surpassed the previous swing high.
Entering a long position at the 38.2% Fibonacci level would have likely resulted in a profitable trade over the long run.
The Downtrend
Next, we will explore the application of the Fibonacci retracement tool in a downtrend scenario. Here is a 4-hour chart depicting the price action of ETH/USD.
As you can see, we found our Swing High at $289 on 14 February 2020 and our Swing Low at $209 later on 27 February 2020
The retracement levels are $225 (23.6%), $236 (38.2%), $245 (50.0%), $255 (61.8%) and $269 (76.4%).
In a downtrend, a retracement from a low could face resistance at a Fibonacci level due to selling pressure from traders who want to sell at better prices. Technical traders often use Fibonacci levels to identify areas of potential price resistance and adjust their trading strategies accordingly.
Let’s take a look at what happened next.
The market did make an attempt to rise, but it briefly halted below the 38.2% level before reaching the 50.0% barrier.
The placement of orders at the 38.2% or 50.0% levels would have resulted in a profitable trade outcome.
In these two instances, we can observe that price positioned itself at a Fibonacci retracement level to find some temporary support or resistance.
These levels develop into self-fulfilling support and resistance levels as a result of all the people who utilize the Fibonacci tool.
All those pending orders could affect the market price if enough market participants anticipate a retracement to take place close to a Fibonacci retracement level and are prepared to enter a position when the price hits that level.
In conclusion:
It's important to note that pricing doesn't always follow an upward trajectory from Fibonacci retracement levels. Instead, these levels should be approached as potential areas for further research and analysis.
If trading were as simple as placing orders at Fibonacci retracement levels, markets wouldn't be so volatile.
However, as we all know, trading is a complex and dynamic process that requires a combination of knowledge, skill, and experience to succeed.
We are truly grateful for your attention and time in reading this post. If you found it insightful and beneficial, we would be thrilled if you could show your support by clicking the <> button and subscribing to our page.
We are excited to share that our upcoming post will showcase what occurs when Fibonacci retracement levels do not perform as expected. Stay tuned for an informative and professional read.
Fibonacci Trick for measuring Risk to Reward RatioIf you don't use your fibb tool much, (save your settings as a template first if you do) or for just a quick check to see if there is enough reward for the risk in the trade, you can set up your Fibonacci in increments of 1 (2.5 is 1:1.5)
Do this as far as you like. You can extend lines left or right to check if the R Ratio you are looking for will fit this market structure, or if you should wait for a better set up.
I happen to see this in a YouTube video, and thought it was very interesting and more than useful...
The settings are as follows :
0 - loss/stop loss price
1 - 1 unit of risk (100 percent)
2 - 1 unit of risk plus 1 unit of reward (1:1)
2.5 - 1 unit of risk, 1.5 unit reward (1:1.5)
3 - 1 unit of risk, 2 unit reward (1:2)
..... and so on.
Then just save it as a template for quick set up later
-- Example of use 6 (600 percent) is 1:5. Just subtract 1 for the risk and the remaining is the reward ratio. Each 100 percent mark is a single unit of risk (-1)
In MT4 its much better to see it directly, as you can label the levels how you wish (using the same formula)
Navigating the Uncertainties of Fibonacci Retracements in CryptoHello, @TradingView community! I'm @Vestinda, and I'm thrilled to share an informative article with you today about Fibonacci Retracements.
While they can be useful tools for traders and investors in financial markets, it's important to note that they are not infallible and may not always produce the desired outcomes.
As discussed in our previous post, Fibonacci support and resistance levels are not infallible and may occasionally break. It is essential to remain vigilant and use these levels in conjunction with other technical indicators and market analysis to make informed trading decisions.
While Fibonacci retracements can be a useful tool in technical analysis, it is crucial to exercise caution and not solely rely on them as the sole basis for trading decisions.
Unfortunately, Fibonacci retracements are not infallible and may not always work as expected.
Let us examine a scenario where the Fibonacci retracement tool proves to be ineffective in technical analysis.
To make a prudent trading decision amidst the ongoing downtrend of the pair, you make a strategic choice to leverage the Fibonacci retracement tool. With meticulous attention to detail, you designate the swing low at 3,882 and the swing high at 10,482 for precise determination of a Fibonacci retracement entry point.
The BTC/USD Daily chart is shown below.
Upon careful analysis, it is evident that the pair has rebounded from the 50.0% Fibonacci retracement level for multiple candles. As an astute trader, you recognize this crucial pattern and conclude that it is a viable opportunity to enter a short position.
You thoughtfully consider, "This particular Fibonacci retracement level is showing remarkable resilience. It is undoubtedly a lucrative moment to short it."
You may have been tempted to take a short position in anticipation of profiting from the downtrend of the pair, while simultaneously daydreaming of cruising down Rodeo Drive in a Maserati.
However, if you had placed an order at that level without proper risk management, your hopes of profit would have quickly dissipated as your account balance plummeted.
Observing the price action of BTC, let's examine what occurred next.
Indeed, the price action of BTC demonstrates that the market is constantly evolving, and traders must be prepared to adapt to these changes.
As shown in this specific case, the price not only climbed close to the Swing High level, but the Swing Low marked the bottom of the previous downtrend. This serves as a prime example of the significance of flexibility in the dynamic realm of cryptocurrency trading.
What can we learn from this?
In the world of cryptocurrency trading, Fibonacci retracement levels can be a useful tool to increase your chances of success. However, it's important to understand that they are not foolproof and may not always work as intended. It's possible that the price may reach levels of 50.0% or 61.8% before reversing, or that the market may surge past all Fibonacci levels.
Additionally, the choice of Swing Low and Swing High to use can also be a source of confusion for traders, as everyone has their own biases, chart preferences, and timeframes.
In uncertain market conditions, there is no one correct course of action, and utilizing the Fibonacci retracement tool can sometimes feel like a guessing game. To improve your chances of success, it's crucial to develop your skills and use Fibonacci retracements in conjunction with other tools in your trading toolkit.
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How to use Fibonacci Retracements for Trading and InvestingIntroduction
The Fibonacci sequence is a series of numbers that starts with 0 and 1, and each subsequent number is the sum of the two preceding numbers. The sequence goes like this: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, and so on.
The sequence is named after Leonardo of Pisa, an Italian mathematician from the Middle Ages who was also known as Fibonacci. He introduced the sequence to the Western world in his book Liber Abaci, which he wrote in 1202.
However, the sequence had already been discovered by Indian mathematicians several centuries earlier. It was used in ancient Indian mathematics to solve problems related to the breeding of rabbits, which is why the sequence is sometimes called the "rabbit sequence".
The Fibonacci sequence has since become a widely studied and applied concept in mathematics, science, and finance. It is used to model a wide range of natural phenomena, including the growth patterns of plants, the breeding habits of animals, and the structure of galaxies.
In trading and investing, Fibonacci retracements are used to identify potential levels of support and resistance in a market or investment. These levels are based on the percentage of a previous price movement that has been retraced. For example, if a stock price has risen from $50 to $100, and then retraces 50% of that move, the 50% retracement level is considered a potential level of support.
Understanding Fibonacci retracements
To create Fibonacci retracement levels, traders use the high and low points of a previous price movement. For example, if a stock has recently traded from $50 to $100, the high point is $100 and the low point is $50. Traders then draw horizontal lines at various levels between the high and low points, based on the Fibonacci sequence. The most common retracement levels are 38.2%, 50%, and 61.8%, although some traders also use 23.6% and 78.6%.
Calculating Fibonacci retracements is relatively simple. To calculate the 38.2% retracement level, for example, you take the difference between the high and low points and multiply it by 0.382. You then subtract this number from the high point to get the retracement level. For the 50% retracement level, you multiply the difference by 0.5, and for the 61.8% retracement level, you multiply by 0.618.
Using Fibonacci retracements for trading
Fibonacci retracements can be used to identify potential levels of support and resistance in a market. For example, if a stock price is in an uptrend and begins to pull back, traders may look for potential support levels based on Fibonacci retracements. If the price retraces to the 38.2% level, for example, this may be seen as a potential level of support. If the price continues to fall and reaches the 50% or 61.8% level, these levels may also be seen as potential support levels.
Similarly, in a downtrend, traders may use Fibonacci retracements to identify potential resistance levels. If the price is in a downtrend and begins to rally, the 38.2%, 50%, and 61.8% retracement levels may be seen as potential levels of resistance.
Fibonacci retracements can also be used in range-bound markets. If a stock price is moving sideways between a support and resistance level, traders may use Fibonacci retracements to identify potential levels within the range where the price may bounce.
Another way to use Fibonacci retracements for trading is in range-bound markets. In this type of market, prices may move up and down within a specific range, with no clear trend. In these cases, Fibonacci retracements can be used to identify potential areas of support and resistance within the range. Traders can use Fibonacci retracements to identify buy and sell signals at these levels.
It's important to note that Fibonacci retracements should not be used in isolation, as they can produce false signals. To confirm signals generated by Fibonacci retracements, traders often use other technical indicators, such as moving averages, momentum oscillators, or volume indicators. For example, if a trader sees a retracement to a Fibonacci level and the price is also above the 50-day moving average, this could confirm a bullish signal and increase the likelihood of a successful trade.
Using Fibonacci retracements for longer-term investments
In addition to trading, Fibonacci retracements can also be used for investing. Long-term investors can use Fibonacci retracements to identify potential entry and exit points for their investments. For example, if a stock has experienced a significant upward trend, and then pulls back to a Fibonacci level, this could indicate a potential buying opportunity. Conversely, if a stock has reached a resistance level at a Fibonacci retracement level, this could be a signal to sell.
Conclusion
ibonacci retracements are a popular technical analysis tool used by traders and investors to identify potential support and resistance levels. By understanding the Fibonacci sequence and how to calculate and plot retracement levels on a chart, traders and investors can use these levels to make more informed trading and investment decisions. However, it's important to remember that Fibonacci retracements should not be used in isolation and should be used in conjunction with other technical indicators and fundamental analysis. With a thorough understanding of how to use Fibonacci retracements, traders and investors can incorporate this tool into their overall strategy to increase the likelihood of successful trades and investments.
This trading strategy WILL make you TONS of MONEY!Hello, guys!
Today I share a strategy I discovered in 2017 when doing comprehensive Fibonacci research!
Everything in this world starts from 0, so we also use that rule in markets!
Hope you find this educational and stay sharp!!
HOW TO TRADE FIBONACCI RETRACEMENTS: THE SHORT GUIDEHey there, traders. One of the common tools we use for technical analysis are Fib retracements and a lot of you been asking on how to use them properly. Well, today is your lucky day :)
Fibonacci Retracement is a technical analysis tool that is widely used by traders to identify potential levels of support and resistance in financial markets, including forex markets. The tool is based on the mathematical sequence known as the Fibonacci sequence, which is a series of numbers in which each number is the sum of the two preceding ones. The Fibonacci Retracement levels of 0.5 and 0.618 are two of the most important levels used in this tool. In this article, we will discuss how to use these levels for trading forex markets.
Understanding Fibonacci Retracement Levels
Before we dive into the specifics of using the 0.5 and 0.618 levels, let's briefly review the concept of Fibonacci Retracement. The tool is based on the idea that markets tend to retrace a predictable portion of a move, after which they may continue in the same direction or reverse. The retracement levels are calculated using the Fibonacci sequence, and they represent potential levels of support or resistance. The key levels are 0.236, 0.382, 0.5, 0.618, and 0.786.
Using 0.5 and 0.618 Levels for Trading Forex Markets
The 0.5 and 0.618 levels are particularly important because they are close to the midpoint of a move, and they are based on the golden ratio, which is a key number in mathematics and nature. The 0.5 level represents a 50% retracement of a move, while the 0.618 level represents a 61.8% retracement.
To use these levels for trading forex markets, you can follow these steps:
Step 1: Identify a Trend
The first step is to identify a trend in the market. You can do this by analyzing the price action on a chart and looking for a series of higher highs and higher lows in an uptrend, or lower highs and lower lows in a downtrend.
Step 2: Draw Fibonacci Retracement Levels
Once you have identified a trend, you can draw the Fibonacci Retracement levels using a tool provided by your trading platform. You will need to identify the high and low points of the trend, and then draw the retracement levels from the high to the low in an uptrend, or from the low to the high in a downtrend.
Step 3: Watch for Reversals at 0.5 and 0.618 Levels
The 0.5 and 0.618 levels are potential levels of support or resistance, and they can act as turning points in a trend. If the price retraces to one of these levels, you should watch for signs of a reversal, such as a bullish or bearish candlestick pattern, or a divergence in an oscillator indicator or any other personal confirmation for potential entry.
Step 4: Confirm with Other Indicators
To increase the probability of a successful trade, you should confirm the potential reversal with other technical indicators, such as a moving average, a trendline, or a momentum indicator, check with the fundamentals and most importantly confirm that it aligns with your original bias regarding the pair. This will help you to avoid false signals and improve your trading accuracy.
Step 5: Enter the Trade and Set Stop Loss and Take Profit Levels
Since the entry was at the "Golden zone", the exit would be around the 0% Fib level. Yes, you just missed half of the trend, but it's a consistent tool that can help you get that edge over the market that you need.
We hope you found this useful and please let us know on what you would want us to cover next!
📊 Fibonacci Trading: Extension LevelsThe Fibonacci retracement tool plots percentage retracement lines based upon the mathematical relationship within the Fibonacci sequence. These retracement levels provide support and resistance levels that can be used to target price objectives.
Fibonacci Retracements are displayed by first drawing a trend line between two extreme points. A series of six horizontal lines are drawn intersecting the trend line at the Fibonacci levels of 0.0%, 23.6%, 38.2%, 50%, 61.8%, and 100%.
📍 How this indicator works
The percentage retracements identify possible support or resistance areas, 23.6%, 38.2%, 50%, 61.8%, 100%. Applying these percentages to the difference between the high and low price for the period selected creates a set of price objectives.
Depending on the direction of the market, up or down, prices will often retrace a significant portion of the previous trend before resuming the move in the original direction.
These countertrend moves tend to fall into certain parameters, which are often the Fibonacci Retracement levels.
📍 Calculation
Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers:
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, and so on.
📍 What Are Fibonacci Extensions?
Fibonacci extensions are a tool that traders can use to establish profit targets or estimate how far a price may travel after a pullback is finished. Extension levels are also possible areas where the price may reverse.
Drawn as connections to points on a chart, these levels are based on Fibonacci ratios (as percentages). Common Fibonacci extension levels are 61.8%, 100%, 161.8%, 200%, and 261.8%.
🔹 Because Fibonacci ratios are common in everyday life, some traders believe these common ratios may also have significance in the financial markets.
🔹 Fibonacci extensions don't have a formula. Rather, they are drawn at three points on a chart, marking price levels of possible importance.
🔹 The Fibonacci extensions show how far the next price wave could move following a pullback.
🔹 Based on Fibonacci ratios, common Fibonacci extension levels are 61.8%, 100%, 161.8%, 200%, and 261.8%.
🔹 Extension levels signal possible areas of importance, but should not be relied on exclusively.
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How to trade Smart Money Concepts:Smart Money Concepts is a more sophisticated way of trading price action, while taking advantage of where institutions are likely to place their orders. This makes Smart Money Concepts a usable tool whenever you are dealing with hedge funds. What you are about to read is an elaborate tutorial explaining a lot about this trading strategy, including some trading strategies (NOTE: there are many SMC indicators and the one I’ll be using is the one by LuxAlgo since I believe is the most “complete” out of all). Let's start.
1) Order Blocks:
Order Blocks are, in my opinion, the most important feature in SMC trading, as it shows where these institutions are likely to place their orders. In order for an order block to form, look at where the market is consolidating, creating an area of volume price is likely to be attracted to (some order blocks are formed due to imbalances in the market). In this image, you can see how order blocks are formed right after a ranging market has been broken. Because of this unique feature, order blocks are not the same as support/resistance zones.
In order for us to trade using order blocks, look for where an order block has been formed recently, as the longer an order block survives, the weaker it becomes. Buy when the candle that hit the order block closes and set your stop loss under that order block. In this example it worked since the volume wasn’t too high and the order block had formed a few candles before the retest. You can do this for shorts as well (NOTE: the more retests the order block gets, the weaker it becomes)
2) BOS & CHoCH:
Supports and resistances usually apply on Price Action, but they can be applied in Smart Money Concepts as well. The difference is that in Smart Money Concepts, you these supports and resistances when the price breaks through them. However, in many occasions these signals can be false and it’s only a retest of the support/resistance. In order to understand what BOS/CHoCH means, we need to look at the graph:
This is an example I made.
From the graph, a BOS or a Break of Structure is whenever the price breaks the most recent support/resistance in the direction of the trend direction(bullish/bearish). A CHoCH or a Change of Character is whenever the price breaks the most recent support/resistance in the direction opposite of the trend direction. What I mean by this is that in the example I have shown, the trend was bullish until it was not. Normally a bullish trend breaks the resistances instead of the supports, and vice-versa. This is why the name Break of Structure since the price continues going the direction it wants while solving any “issue” in its path. If this “issue” is big enough to break the support/resistance maintaining the trend intact, then it’s known as a Change of Character , since it changes the character of the trend. When this happens, there is a chance for a trend reversal to happen, which is the case for the example I’ve shown. Now I’ll show how to trade BOS/CHoCH in a real graph.
As you can see from the chart, there are a lot of Breakthroughs of Structure and Changes of Character, but this indicator actually shows which of these BOS/CHoCH are major. The trick is that if the indicator shows a BOS/CHoCH marked by a straight line instead of a bunch of lines, this means that it is more accurate. In this example, we ignore the smaller BOS/CHoCH and just look at the 2 important ones. We know they are important because they are marked by a straight line. You buy after the CHoCH/BOS label appears and when the candle that retested the broken resistance/new support closes and the volume doesn’t increase before that (unless the market is ranging after it broke). Same thing with shorts. You short after the BOS/CHoCH label appears when the candle that retested the broken support/new resistance and the volume doesn’t increase from the candle before that.
3) EQH/EQL:
In Price Action , there are chart patterns. One of the most known ones are the double top and the double bottom . Smart Money Concepts refers to these double tops/bottoms as Equal Highs and Equal Lows (EQH/EQL for short). Here’s an example:
As you can see, there is a double top (EQH) which came after an uptrend, meaning that there is a chance that the price will break the necklace (the support line made in the middle of the double tops), causing a change of character, which it did. Due to the nature of double tops and bottoms, this rarely happens. You should use this tool in confluence with other SMC tools like Order Blocks and BOS/CHoCH. Personally, I don’t use them much. I just use them to identify strong supports and resistances, as well as double tops and bottoms. They could also be used to identify trend reversals on major areas of support and resistance.
4) Premium and Discount zones:
Premium and Discount zones are ranges that form in the market when a recent major support and resistance has been established. In this example, you can see when did the premium and discount zones form. The price made a major support and resistance. The equilibrium zone is the 50% line in the Fibonacci Retracement tool if you pay close attention.
This means that price can react off of the Equilibrium zone, and if you pay close attention, you can see it was ranging for a while.
For a trading strategy, wait for the price to reach the Premium or Discount zones, and, if the market's volume decreases, enter a trade and set your take profit at the equilibrium zone. The reason why you should set your take profit at the equilibrium zone is because there is a chance the price rejects off of the equilibrium zone.
5) Fair Value Gaps:
Fair Value Gaps are imbalances that form in the market and can be good support/resistance areas. They usually form when the market is volatile and when a breakout or retest just happened.
In order to identify what a fair value gap is, look for a huge candle body like the one shown in the picture, then, draw a rectangle with its base being at the highest point of the previous candle's upper wick and with its top being the lowest point of the following candle's lower wick. Now, extend the rectangle to the right and now you have a fair value gap.
For a trading strategy, look for the line in the middle which is shown in the fair value gap. This line acts as a support, and the price can bounce off of it. For an entry point, wait for the price to react to the fair value gap, and, if the volume decreases while the reaction is happening, enter.
6) Liquidity Grabs:
Even if you think your trading strategy is amazing, you will always have to deal with scams. No matter how good your trading strategy is, all trading strategies fail to deal with hedge funds and whales. They sometimes act when the price is very close to a support or resistance, and when the people expect a bounce, they place their stop losses under the area of confluence. These hedge funds then act, and end up manipulating the market, forcing the people to panic buy or panic sell, depending on the area of confluence. One major example of market manipulation is in the Crypto Exchange. Trading Crypto is almost like gambling. Liquidity grabs perfectly reference the scam. You can spot them if, on a ranging market, there is a sudden increase or decrease in price. Always pay attention to traps like the ones in these examples shown below:
For a trading strategy, wait for the scam pump or dump to stagnate and then enter your trade in the opposite direction that the candle was going to.
In conclusion, Smart Money Concepts is a fascinating trading strategy for me, and it could be for you too. There are many aspects of it, and it is another way of trading Price Action, which itself is already fantastic.
This tutorial took me 3 hours to make, so please make sure to heart and comment your opinion on this. Thank you for reading through all of this.
FLSY - Anatomy of a "Good" tradeHi All,
This is just to share on how I would approach a trade (as a trader).
1. Look for signs that the stock is forming a bottom (rounded bottom, inverted Head and Shoulders, Adam and Eve),
rising above 200 day MA, Golden Cross etc.
2. Check out its longer term charts (ie weekly and monthly) as you will likely see a clearer picture of it's direction.
3. Wait for some triggers (eg breaking above neckline especially on strong volume).
FLSY is a good example and had presented several good opportunities for several short term trades recently (could be held for longer term if one had entered earlier around 12.36 (1st Entry in chart) and didn't get stopped out.
1) On 2nd Feb (Initial Breakup), it gapped and broke up above this neckline (as well as it's 200 day MA), everything looks good except volume was just above average.
Well, this initial break up failed! Yes, it happens more often than we cared for, especially during the earlier phases of the trend, hence a conservative trader would prefer to wait for a pullback and long if the neckline proved to be a support.
2) on 13 Feb (1st Entry), FSLY once again gapped above the neckline and 200 day MA, but this time the volume was HUGE. However, this was prior to earnings announcements (2 days later, AMC). There is a possibility that earnings beat had been leaked, so if one decide to enter this trade, then it would probably be wise trade small.
3) on 16 Feb (2nd Entry), the day after earnings, which beat expectations (surprise surprise...LOL), many traders will FOMO into the stock especially as it rose above the previous candle's high around 14.20. This turned out to be a very profitabe trade (intraday).
Next day however, it formed a "Harami" candlestick (aka "inside bar"), showing indecision at this point. I would raise the stop to 15.30, slightly just under this "Harami" candlestick (which is already a 11% SL from its high @ 17.18). Those with a larger risk appetite could raise the stop to entry price (ie 14.20), allowing for larger volatility which could stop one out prematurely but be prepared to give back all profits if wrong.
4) FSLY had a steep pullback after all (due to poor market sentiment during the whole month of Feb) and found support only at 61.8% of it's large AB up swing. This was also within a prior "Resistance" but turned "Support" zone. It began to form small sideway candles (a signal to long if it starts to break above this "consolidation" range)
5) We had a Long trigger again last Friday (3rd Entry) as the stock started to rise decisvely above the consolidation high @ 14.20.
It turned out to be a large candle day, hence I would place initial stop loss just below this large candle (ie 13.55, a 5% initial SL).
There is a good chance this stop will not get hit (although nothing is guaranteed LOL).
Uptrend is underway for FSLY (above 200 day MA, with the shorter MAs (20 and 50) both rising. However, it could still experience large swings along the way and one has to manage the trade and raise the stops from time to time to protect profits. Just because one is stopped out does not mean the stock is spent. Sometimes it could be just periods of consolidation (short or long periods). Keep it on your watchlist as long as the stock has not shown signs of bearishness on a higher timeframe, set alerts for the next trigger.
Disclaimer: Just my 2 cents and not a trade advice. Kindly do your own due diligence and trade according to your own risk tolerance and don't forget that money management is important! Take care and Good Luck!
Fibonacci RetracementFibonacci retracement is a technical analysis tool to identify potential support and resistance levels in financial markets. The tool is based on the Fibonacci series, a mathematical sequence of numbers where each is the sum of the previous two numbers. The origin of the
Fibonacci sequence goes back to ancient India and the study of Sanskrit prosody. However, the series is named after Italian mathematician Leonardo Fibonacci, who introduced the sequence to the West in his book Liber Abaci, published in 1202. In contrast, the
Fibonacci retracement was first used in financial markets in the 1930s. . Ralph Nelson Elliott, the famous trader, developed the Elliott wave theory. Elliott believed that market movements can be divided into waves, each with a characteristic pattern.
Elliott noticed that certain retracement levels based on the Fibonacci sequence tended to act as support or resistance levels in the market. In particular, he called the levels 38.2%, 50%, and 61.8% the most important.
Since then, the Fibonacci retracement has become widely used in technical analysis and is included in many trading platforms and charting programs. Traders use it to identify potential support and resistance levels and determine trades' entry and exit points.
Fibonacci retracement is a popular tool among technical analysts and traders and has many uses in financial markets. Here are some common uses of Fibonacci retracement:
Identifying potential support and resistance levels: The 38.2%, 50%, and 61.8% levels are often used as potential support and resistance levels in the market.
When a price trend occurs, traders often consider these levels potential turning points.
Identifying Entry and Exit Points: Traders often use Fibonacci retracement levels to identify potential entry and exit points for trades. For example, a trader can enter a long position on a stock when the price returns to the 50% level after a previous uptrend and then place a stop loss just below the 61.8% level.
Trend Direction Confirmation: By analyzing Fibonacci retracement levels, traders can confirm the price trend direction. If the tracking levels align with the trend's direction, this can be a sign that the trend is likely to continue.
Giving Price Targets: Fibonacci retracement can also be used to identify potential price targets for a trend. Traders often look for the 161.8% and 261.8% levels as possible targets for the trend when the price crosses the 100% retracement level.
Summary with other technical analysis tools: Traders often use Fibonacci retracement levels in conjunction with other technical analysis tools, such as moving averages or trend lines, to strengthen trading signals and increase the probability of a successful trade.
Fibonacci retracement is a widely used tool with advantages and disadvantages in technical analysis. Here are some of the main advantages and disadvantages of using Fibonacci retracement:
Advantages:
1. Identifies potential support and resistance levels: Fibonacci retracement can be used to identify potential support and resistance levels, which is important for traders to identify a potential reversal. . . points in the price trend.
2. Ease of use: Fibonacci retracement is easy to use and can be applied to many financial instruments. It is readily available in most mapping software and trading platforms. It can be customized to meet the needs of individual traders.
3. Widely used: Fibonacci retracement is widely used in technical analysis and is well-known among traders and analysts. This facilitates interpretation and application in different market conditions.
Cons:
1. Not always accurate: Fibonacci retracement is imperfect, and its accuracy may vary depending on the market area and period analyzed. Traders should use it with other technical analysis tools to confirm signals and reduce the risk of false signals.
2. Subjective: Like many technical analysis tools, Fibonacci retracement is quite subjective, and traders can interpret levels differently. This can lead to different business decisions and results.
3. Can be overused: Some traders may rely too much on the Fibonacci retracement method and use it as the basis for their trading decisions. This can be risky because only some tools can provide all the information needed for successful trading. Investors should use the Fibonacci retracement as part of a broader trading strategy that includes multiple indicators and factors.
There are several important factors to consider when using Fibonacci retracement:
1. Choosing the appropriate pivot points: To use the Fibonacci retracement, traders must identify the appropriate swing points to calculate the level. These swing points should be significant highs and lows in the price trend and should be selected based on the analyzed time frame.
2. Understanding Levels: Traders should understand Fibonacci-rich levels and what they represent. The 38.2%, 50%, and 61.8% levels are the most commonly used and considered potential support and resistance levels.
3. Using Fibonacci retracement with other indicators: Investors should use Fibonacci retracement with other technical analysis tools, such as moving averages or trend lines, to strengthen signals and increase the probability of a successful trade.
4. Adaptation to market conditions: The accuracy of Fibonacci retracement levels can vary according to the specific market area and the period under analysis. Traders must be prepared to adjust levels based on changing market conditions and adjust their trading strategy accordingly.
5. Risk Management: As with any trading strategy, traders should properly manage their risks using the Fibonacci retracement. This may include setting stop orders at appropriate levels or limiting position sizes to minimize the impact of potential losses.
Fibonacci retracements are widely used in technical analysis. Still, there are also some alternative tools that traders can use to analyze the market.
Moving Averages: Moving averages are commonly used technical analysis tools that help traders identify trends and potential entry and exit points.
Bollinger Bands: Bollinger Bands is a technical indicator that helps traders identify potential support and resistance levels.
Ichimoku Cloud: The Ichimoku Cloud is a technical indicator that helps traders identify trends, momentum, and potential support and resistance levels.
Elliott Wave Theory: Elliott Wave Theory is a technical analysis tool that helps traders identify trends and potential entry and exit points.
It is based on the idea that the market moves in a series of waves and can be used on different timeframes.
Thanks for reading this.
What do you think the pros and cons are?
Do you think I missed something?
Let us know your ideas.
Good luck.
Fibonacci Retracement Levels In Forex TradingBoth novice and seasoned traders use Fibonacci levels as one of the most common and universal strategies when trading forex and other markets. It is a well-known fact that market prices incline toward levels where the bulk of market orders are gathered. Such levels can be found and predicted using a variety of ways.
Systems for trading are built on a variety of levels. Since traders first realized that the price fluctuations of some assets frequently followed the Fibonacci number sequence, the Fibonacci levels have been employed in trading. The standard Tradingview trading platform, which is currently the most well-known and in demand, includes the tool because of how useful it is.
Leonardo Fibonacci, who was born in ancient Italy, discovered a straightforward numerical sequence that is utilized globally and is consistent with a wide range of natural occurrences.
The order is as follows: 0 followed by 1, then 1 (0+1), then 2 (1+1), then 3 (1+2), followed by 5, then 8 (3+5), etc. It appears that the Fibonacci sequence is the sum of the two numbers before it.
An intriguing ratio may be calculated using these numbers: 0.618 is the result of dividing the first by the second (regardless of which of the numbers in the sequence are taken). And you get 0.382 when you split the numbers by one. The "golden ratio" is this set of fractions, and it appears frequently in nature, a striking example is a spiral like the seeds in a sunflower.
The following are the trading-related Fibonacci correction levels: 0.236, 0.382, 0.500, 0.618, and 0.764.
Levels of expansion are 0; 0.382; 0.618; 1.000; 1.382; and 1.618. It makes no sense for traders to manually calculate any of these figures, which are all calculated from the sequence. The key is to comprehend how they operate, what they are used for, what data they offer, and how to make effective use of them when trading.
Special indicators that automatically draw lines on the chart or symbols in the trading platform are used while trading with Fibonacci levels. Retracement levels can be utilized for a number of purposes, such as support and resistance, to start trades, and to set stop orders. The usage of extension levels by traders for take-profit placement. Based on swings, or candles with at least two upper highs or upper lows on the left and right, Fibonacci levels can be applied to a chart. Additionally, bear in mind that Fibonacci levels for forex are a trending technique and are not applied during periods of consolidation. When the trend is upward, the price tends to retreat from Fibonacci-based resistance levels; the opposite is true for downtrends and support.
Fibonacci Levels in Forex: How to Use Them
Almost all charting applications contain Fibonacci retracement levels. Fibonacci lines are regarded as the most flexible and understandable option, however others also use fan lines, arcs, and time periods as typical tools.
What do you need to know about Fibonacci numbers in order to trade?
Values are calculated as 23.6, 38.2, 50.0, 61.8, and 76.4% on a scale of 0 to 100. The primary signal for foreseeing likely future price fluctuations is these ratios (prices often bounce back from levels). The indicator shows levels on the price chart and allows forecasting of future price changes.If you want to manually trade using the price chart or the software, you can select to display correction levels. To do this, drag the cursor from the bottom point of the trend to the top point. There will be five horizontal lines that display 0, 38.2, 50, 61.8, and 100% (an additional line showing 23.6% can be added).
Depending on whether Fibonacci is trading above or below the lines, the lines can be utilized as support or resistance levels. The levels activate more frequently as the time span becomes longer. Finding a downward trend, appropriately stretching the Fibonacci lines, waiting for confirmation, and placing an order are the essential duties of a trader. Numerous strategies for using numerical series in trading exist.
How Fibonacci Levels Work And How To Use Them In Trading
Trading professionals can examine the changes in asset values by using Fibonacci numbers that are displayed as lines on the chart. As a result, resistance/support levels are established, and the degree of a trend movement's already-started corrective is examined.
The price typically follows the guidelines of key levels on the Fibonacci lines. Therefore, there is a strong likelihood of a price reversal at the level, for instance, if the price crosses the line. Fibonacci retracement levels are particularly helpful for discovering pullback levels, for establishing the conclusion of a pullback, and for the continuation of price movement along with the trend because pullbacks are a natural part of every trend.
The key correction levels are created by the interrelations between a trend and a correction shown by Fibonacci levels, which have recovery probabilities of 38%, 50%, and 62%. It only takes placing a grid over critical spots to see that pivotal price levels frequently cross Fibonacci percentage lines. Fibonacci levels and graphical patterns can be used to coincidentally determine market entrance and exit points. Opening profitable trading positions after a collapse or rebound from a level is beneficial.
Trading professionals frequently employ Fibonacci lines to place Stop-Loss and Take-Profit orders. To avoid being caught by an unintentional pullback, it is preferable to position the Stop-Loss order above the levels (for the recovery from which the trader is counting). Take-Profit levels are based on Fibonacci extension.Remember that on a price chart, the support/resistance areas that coincide with the Fibonacci net levels are viewed as further support for the lines' significance.
This instrument is the foundation of many trading techniques. Beginners should be aware that there is no definitive interpretation of the Fibonacci technique; it is merely a point of reference. Trading systems frequently incorporate Fibonacci levels with other technical analysis tools because this technique can occasionally fail to corroborate the signals.
Importance Of Different Fibonacci Levels
Expert traders claim that not every Fibonacci level behaves the same way on a price chart. Before using the instrument for trading, some regularities should be studied.
Fibonacci levels and their importance in trading:
23.6 - weak, a clear confirmation is required to use it in trading.
38.2 - an important level, the price of the asset bounces from it for further consolidation.
50 is intermediate in importance between the two previous levels and gives a high probability of trigger.
61.8 - strong, like 38.2.
76.4 - 80.9 is a strong level as well.
The likelihood of a profitable trade is quite high if we consider the strength of the levels, trade in line with the trend, weed out erroneous signals using a straightforward extra indicator, and avoid using low time frames. Additionally, it's critical to remember risk management and trading psychology's fundamental principles.
Advice for using 38%, 50%, and 62% levels effectively
Stretched between the trend's minimum and maximum, a grid is drawn on the graph. On the charts, three to four separate time frames with longer value movements can be displayed in various colors. Numerous Fibonacci levels will be displayed on the graph, allowing for analysis. Usually several of them exactly coincide on various time scales, therefore they are regarded as significant support/resistance levels.
These three can be utilized to enter positions and exit open ones because fibonacci numbers have potentially important levels. These price retreat levels by themselves are not what drives price movement; if this line doesn't have the appropriate support, it will simply go to the next. More accurate signals are produced by combining Fibonacci with other tools (such as Moving Averages, trading channels, reversal patterns, etc.).
A significant resistance/support level is 62%. When it is attained, the price frequently starts to vary erratically. When the price surges past the 62% level and moves on to the 70–75% retracement level (before returning to the 62% level), you can place an order. When two to three further crossover signals are received, trades can be initiated from deep retracement levels. It is preferable to avoid entering if there are no cross confirmations. It's also a good idea to keep in mind that once the correctional movement reaches the 62% pullback level, it may go on to reach 100% in the chosen time frame and stop the trend.
Fibonacci Levels: How to Use Them in Forex Trading
Fibonacci levels can be used relatively easily. The most crucial levels in forex trading are 23.6% and 38.2%, 61.8% and 76.4%. They are used to identify price pullbacks; when one appears on the chart, one should wait for a favorable price before joining the impulse (enter the movement at the moment of a pullback).
When there is a significant market movement, the asset's price can drop by up to 23.6%, 38.2%, or even 50%. These ranges are regarded as ideal. Price increases of 61.8% or more may signal the beginning of a trend reversal.
The Fibonacci levels should be drawn correctly:
-Finding the price impulse.
-Plotting the grid on the chart.
-The expectation of a pullback to 23.6% or 38.2% or 50% to enter the market.
-When there is no pullback, the price keeps moving, updating the lows/maximums, it is worth pulling over the grid based on new local extrema.
-In this case, it is important not so much to determine the levels as to understand whether the current price movement is a correction concerning the previous one or the beginning of a new trend.
When Fibonacci Correction Levels Do Not Work
Fibonacci levels are not 100% reliable signals; they are more like rough guidelines that give information about the movement that is likely to occur. Fibonacci levels can also be broken occasionally, just like support/resistance levels can. There are many exceptions to the rules, therefore it is advisable to check the signals with additional tools and to take the maximum precautions when opening any position.
The levels need to be carefully worked, refined, and filtered on a regular basis. Sometimes levels might be crossed, and the bounce occurs at 61.8 instead of 50%; other times, the price skips levels and views essential ones as weak and unimportant ones as important. Because of all these features, it is important to be able to combine different tools in a strategy and constantly gain experience trading with the selected tools.
Conclusion
The suggested strategy broadens the potential uses for trading with Fibonacci levels. You can use it to your advantage so that practically any corrective movement—not just ones that conclude at 38.2% or 61.8%—will be beneficial. You must be able to accept what the market offers you since it doesn't always move that well.
How to double your small ($250) trading account trading Bitcoin How to Double your Small ($250) Trading Account Trading Bitcoin
I started a degen account with $250 and almost doubled it in 4 days making about 6 trades. This strategy is not Financial advice and I'm only illustrating what I have learnt trading this way. This is the first video in the series and I'll be continuing the series , updating you on progress, winners, losses, my trading journal and some live trading, so make sure to Sub, like comment and share.
I show you how I entered my current trade, where I am looking to take profits and show you my pnl on Bybit.
Not Financial Advice. DYOR. Papertrade before trading with real money.
Hope you have a profitable trading day!
Shawn
✅ 4 Methods to Confirm EntriesYou should make sure that your reward is bigger than your risk.
It is up to you what your optimal risk to reward should be – ideally you should have a risk to reward of 1:2 or 1:3.
✔️Trendline Reversal & Break
The trader should constantly monitor both the support and resistance trendlines and redraw them as the old ones break and new ones form.
When an intersection of the projections happens, one of the trendlines must be broken and the other will most likely continue to hold the price.
We trade in the direction of the trendline that remained unbroken with potential entries at the trendline breaks.
✔️Support & Resistance
Look at the price chart and observe the support and resistance levels that you have drawn on the charts.
You will look to place sell orders at the resistance levels and buy orders at the support levels.
Stop loss below the support level or above the resistance level depending the call you’re on.
✔️Fibonacci Retracement
Fibonacci retracement levels connect any two points that the trader views as relevant, typically a high point and a low point.
The percentage levels provided are areas where the price could stall or reverse. These levels should not be relied on exclusively,
so it is dangerous to assume that the price will reverse after hitting a specific Fibonacci level.
✔️Consolidations
A price consolidation is a period when the price is moving sideways without any significant advancement in the upward or downward direction. A price consolidation can take any form.
It could be a rectangular pattern (often called a range), any of the different types of triangle patterns, a rising or falling wedge, a pennant, or a flag.
Depending the pattern that takes place, you’re gonna look for entries and stop loss bellow pattern’s invalidation.
👤 @AlgoBuddy
📅 Daily Ideas about market update, psychology & indicators
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Jist a 4h Fibo from a Weekly TFThis isn't an idea, this is just a beautifool picture. It can be zoomed.
If you wold like to repeat, goto 1W TimeFrame, select Fibo tool and apply it to the last largest impulse candle.
From its top to the bottom. I don't remember, with or without wicks. From the bottom to the top is a different idea.
Then switch to 4h TF and enjoy this beauty.
Merry Weekend! 🎅🎄❄
