Trading the 1-2-3 Reversal Pattern Using the Fibonacci Tool

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Завершена Harmonacci Patterns 8.0 (MT4/MT5)

Тема в разделе “Индикаторы”, создана пользователем crashbasher, 30 дек 2020 .

How to use Fibonacci in trading

Trading based on the Fibonacci method is a unique way of analysing markets. The Fibonacci hypothesis that was developed by the famous mathematician, Leonardo de Pisa, has stood the test of time.

Even to this day, traders apply the concepts of Fibonacci and the golden ratio; represented by the number 1.618, in various forms of technical analysis. Fibonacci methods, however, are most commonly applied to identify support and resistance levels.

Traders use the Fibonacci numbers in order to estimate where prices might retrace or reverse by measuring the most recent leg of an uptrend or downtrend.

Fibonacci-based trading methods work due to the fact that they’re widely practiced. So, despite the mysticism attached to this form of technical analysis, it is, in fact, a self-fulfilling prophecy. To put it in other words, given the widespread use of Fibonacci-based methods of analysis, traders tend to watch these levels and trade based on the Fibonacci levels, making them into forms of support and resistance that simply work.

Before we get into more detail on the subject of Fibonacci trading, a bit of history and context is required.

Where did the Fibonacci numbers come from?

It is said that in the year 1202, Leonardo de Pisa, or Leonardo Pisano, who was born in Pisa, discovered the Fibonacci sequence of numbers. Although the Fibonacci sequence is largely attributed to Leonardo, his knowledge came from his travels to the Far East. Having learned about the Hindu-Arabic numeral system, Fibonacci documented his discovery in his famous work; “Liber Abaci”, which eventually led to his nickname as Fibonacci.

The works of Leonardo eventually gave way to the discovery of what is called “the golden ratio.”

The golden ratio has been proven to appear, not just in the financial world of trading, but in every aspect of life; from famous pieces of Ancient Greek architecture, to nature. The most famous example of the golden ratio is the nautilus shell. The golden ratio can be seen in the nautilus shell, which expands in a logarithmic spiral. By connecting the arcs with squares, or Fibonacci tiling, the sizes of the squares follow the Fibonacci sequence of numbers.

Understanding the Golden Ratio or Phi

The golden ratio, or phi, is the number 1.618. The inverse of this is 0.618. Phi (pronounced “fi” or “fy”) is the ratio of the length of one line segment to another, which results from dividing the original line at a certain point. For example, the distance from point A to point C in the line below is said to be 1.618 times that of the distance from point B to point C, and the distance from B to C is 0.618 times that of A to C. In mathematics, phi with an upper-case ‘P’ represents 1.618, while phi with a lower-case ‘p’ represents the inverse, which is 0.618.

The golden ratio occurs in the numerical series developed by Leonardo, also known as the Fibonacci sequence of numbers.

What is the Fibonacci sequence of numbers?

Leonardo described his sequence of numbers in the following way:

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0,1,2,3,5,8,13,21,34,55,89,144,233 and so on.

The further you progress into the sequence; you will find that each number becomes 1.618 times greater than the preceding number. For example, when you divide 89 by 144, you get 0.618, but when you divide 89 by 55, you get 1.618; the golden ratio. This is similar to the illustration given in figure 1 with regards to points A and B in relation to point C.

Based on the Fibonacci sequence, we now know two main ratios; phi, which is 1.618 and its inverse; 0.618. Aside from the above, other ratios include 0.382. This ratio is formed when you take a number and divide it by the number two places to the right.

Thus, 89/244 = 0.3819 or 0.382 when rounded to 3 decimal places. Further variations also derive other ratios such as 0.236, which is derived from taking a number and dividing it by the number four places to the right. In the world of technical analysis, the following ratios are the most important: 0.236, 0.382, 0.618, and 1.618. Of course, you can find many other ratios, but the above four are the most important.

How to use Fibonacci ratios in Forex trading

Traders know that prices never rise in a straight line. Prices tend to rally or decline, then retrace, and then continue in the direction of the previous trend. By using Fibonacci ratios, you can measure a wave (a rally or a decline) and then anticipate where the price might retrace when it pulls back.

The Fibonacci ratios are the key levels where you can expect the price to retrace. Thus, Fibonacci ratios are nothing more than support and resistance levels. They work because these levels are watched by a large number of traders.

Fibonacci levels can be combined with any trading strategy. For example, if you use a moving average, you can apply Fibonacci levels to measure the length of a rally and then wait for the moving averages to confirm the bullish or bearish trend when the price makes a pullback.

Of course, using Fibonacci levels requires a bit of discretion. For example, the points you choose to measure the Fibonacci level can vary from one trader to another. Likewise, some traders use only the opening and closing prices, while others use the high and low prices.

Remember that Fibonacci levels are an exact science.

The Fibonacci retracement tool – MT4

The MetaTrader 4 (MT4) trading platform, as well as just about any other trading or charting platform, has the Fibonacci measurement tool. You can access this from MT4’s main menu: Insert > Fibonacci > Retracement.

There are many other Fibonacci tools; such as the Fibonacci spiral, Fibonacci arcs, and so on. But among all these tools, the retracement tool is the most widely used. In MT4 and most other charting platforms, you can also adjust the levels.

In this example, we only apply 0.618, 1.618 (which is the extension), and 0.382. You can adjust further values by double-clicking on the Fibonacci tool and entering the values yourself. An example of this is shown in figure 2 below.

How to draw Fibonacci levels

The first step is to identify a strong movement in the market. This could be a strong rally or a strong decline. Now, starting in the opposite direction to this strong movement, click on the starting point of this rally (could be a high or low) and drag the Fibonacci tool to the end point.

A quick way to see if you’ve plotted the Fibonacci tool correctly is to simply look at the 0 and 100 values. When the Fibonacci levels are plotted, you’ll see the retracement level 0.382 followed by 0.618.

Figure 3 illustrates an example of how to draw the Fibonacci tool.

How to trade with Fibonacci levels

Now that the Fibonacci levels are in place, the next step is to expect a reversal either at the 0.618 or 0.382 Fibonacci ratio levels. These are nothing but supports and resistances. In an uptrend, when you measure the Fibonacci ratios (as shown in figure 3 for example), the 0.618 and 0.382 (and other Fibonacci ratios) are potential support levels.

Conversely, when you measure a downtrend using Fibonacci ratios, the levels of 0.618, 0.382 etc. become potential resistance levels.

Depending on the price action at these levels (or based on signals from other technical indicators) you can expect prices to reverse (or in some cases break these levels and change direction).

In most cases, when the price retraces to 0.618 or 0.382, you can expect it to then rally towards 1.618, which is known as the Fibonacci extension level.

This principle is widely used as a trading strategy in itself as traders typically buy or sell near the Fibonacci retracement level and take profit near the Fibonacci extension level.

In the above example in figure 3, a long position would have been opened at either 0.382 or 0.618 (deep or shallow retracement) with a Take Profit set at the 1.618 extension level.

Some traders also make use of the 50% retracement level, while others prefer to round off the Fibonacci ratios to 0.40%, 0.62% and so on. It doesn’t make much of a difference; just as one trader may use highs and lows while another trader might use the opening and closing prices.

Fibonacci ratios can be applied to any market and any timeframe as long as there is a strong movement in the market. One of the most important aspects of successful trading with Fibonacci levels is to have patience and wait for a pivot high and low to be formed.

Figure 4 shows the Fibonacci ratios applied to a daily chart for Cisco Systems (CSCO).

In the above example, you can see where the high and low points were taken from and the subsequent retracement to the 38.2% Fibonacci level.

Most traders tend to plot Fibonacci levels as the price evolves. However, a trader must wait for a few sessions until the retracement is in the early stages. Another important thing to bear in mind is that just because the price retraces to a Fibonacci level, there is no guarantee that the price will continue in the direction of the trend.

There are many instances when the price bounces off the 61.8% retracement but the subsequent rally fails, with the price eventually changing trend and thus, its direction.

In conclusion, Fibonacci ratios might seem mystical but they are nothing but support and resistance levels that are widely watched by traders. The popularity of Fibonacci levels makes them a self-fulfilling prophecy; as large buy and sell orders are placed at these levels.

The fact that Fibonacci levels represent potential areas of support and resistance makes them a unique choice for trend traders.

How to Use the Fibonacci Retracement Tool in Your Day Trading Strategy

I keep getting questions about advanced and complex technical indicators like Fibonacci retracements.

What I’m about to write might come across as a little weird, but here goes …

I don’t use most of these ‘super advanced’ technical indicators in my trading. It’s not that I don’t respect them. Nor do I think they are completely worthless. For some traders, these indicators are really important. It’s part of their trading strategy. Which is why you should understand them.

Remember, there are winners and losers in every trade. Your goal is to be on the winning side often enough to grow your account. Rather than tell you what to do with Fibonacci retracement, I’ll explain it and let you decide.

I like to keep things simple. When you join my Trading Challenge you’ll see just how simple. You’ll still have to study your butt off and you might even decide to use Fibonacci retracements as part of your strategy. But I’ll teach you what my other students are doing to become self-sufficient traders.

Table of Contents

What is Fibonacci Retracement?

Fibonacci retracement levels explained: In a nutshell, these are support and resistance levels based on ratios created with numbers in the Fibonacci sequence.

The idea is, a trend is likely to continue once there has been a retracement to one of the Fibonacci levels

In case you don’t know, the Fibonacci numbers are a sequence described by the 13th-century Italian mathematician Leonardo Pisano Bigollo. Today he’s called Fibonacci because, in the 1800s, some historian called him Leonardo filius Bonacci — or Leonardo, son of Bonacci.

Onward. The sequence named after this really smart guy is pretty cool. Check it out: Start with zero and one, then add each number in the sequence to the previous number to get the next number. 0 + 1 = 1, 1 + 1 = 2, 2 + 1 = 3, 3 + 2 = 5, 5 + 3 = 8, and so on.

Here’s the sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, etc.

Right. So I can hear you asking, “Tim, what in the heck does this have to do with trading penny stocks, dude? ”

I’m laughing right now because I sorta agree! But stay with me here, because this is good stuff to know.

Here’s how it works: take any two adjacent numbers in the sequence and divide the lower number by the higher number. For example, 5 ÷ 8 = 0.625; 8 ÷ 13 = 0.61538; and 13 ÷ 21 = 0.61904.

Notice they are all very close to 62%? If you keep going like this, the numbers continue to approach 61.8% which is the number accepted as the average of this ratio. Keep 61.8% in mind; we’ll come back to it.

Back to those Fibonacci numbers …

Next, take a number in the sequence and divide it by the number which is two further along in the sequence. This equation gives you a number close to and approaching 38.2%. For example, 55 ÷ 144 = 0.3819. You can do this with any of the numbers in the sequence and you’ll get roughly 38.2%.

If you keep going, by dividing by the number which is three further along in the sequence, you get 23.6%. So far we have 61.8%, 38.2%, and 23.6%. Those are all the Fibonacci ratios used for retracement. However, the indicator uses 0% and 100%. And most of these retracements also include 50%, even though 50% is not one of the ratios.

Why 0%, 50% and 100%?

The 50% ratio has nothing to do with Fibonacci. It’s based on Dow Theory which says a trend has a good chance of continuing once there has been a 50% retracement (either a pullback or an impulse). 0% and 100% represent the high and low price used to create the Fibonacci retracement.

Before you think you need to be good at math for this, let me say this: I’m not good at math. You don’t have to be good at math. Pretty much every modern stock trading and charting platform has Fibonacci retracement built-in.

The levels are calculated in relation to the vertical distance between high and low — or the 0% and 100% lines.

The theory is, if a stock has shot up over a period of days and starts to pull back, there will be support at the Fibonacci levels below the high. Likewise, if a stock has fallen and bounces back up, you’d see resistance at the Fibonacci levels.

Why is 1.618 The Golden Ratio?

If you’ve read anything about the ancient Greeks, you’ve probably heard of the golden ratio. This was the name they gave to a ratio based on the inverse of our calculations above. How do you get it? Instead of dividing by the next higher number in a Fibonacci sequence, you divide by the number below.

For example: 8 ÷ 5 = 1.6; 13 ÷ 8 = 1.625; and 144 ÷ 89 = 1.6179. Like our ratios above, as you continue along the sequence, the numbers get closer to 1.618. This is considered the golden ratio.

To be clear, the Greeks — and other cultures — noticed the golden ratio in nature and started applying it to art and architecture long before Leonardo Bigollo wrote about the sequence.

It’s found in everything from the spirals of shells to patterns in plants, and even constellations and galaxies. In 2020 it was announced in the journal Science that the golden ratio is “present at the atomic scale.”

Very interesting. But can this help you be a better trader? Keep the golden ratio and how it’s calculated in mind, because later in this post I’ll get back to it.

Benefits of Using Fibonacci Retracement

Pay attention here. What I’m about to tell you might sound slightly controversial. But if you’ve been reading my blog or watching my videos for a while you know I hate the B.S. peddled by some of the so-called gurus out there.

I’m not knocking Fibonacci retracements. Combined with other indicators they might be useful to you. But the greatest benefit of the retracement might be understanding the concept of the self-fulfilling prophecy.

What does that mean? One of the things you want to understand as a trader is human psychology. When it comes to using indicators like Fibonacci retracements, psychology comes into play.

It’s like this: If enough traders use that retracement indicator, then you can potentially predict buy or sell opportunities. And if enough traders act when price action reaches those levels, then it becomes a self-fulfilling prophecy.

Some traders use Fibonacci trading to determine automated stop losses. Be wary, however. There are dozens of possible indicators out there. Not every trader uses Fibonacci levels. But it pays to be aware what other traders might be thinking …

How To Use Fibonacci Retracement in Technical Analysis

Let’s look at Fibonacci retracement on a stock chart. Check out the Twitter ($TWTR) chart below. The time frame is the end of November 2020 to market close on December 14.

Twitter ($TWTR) chart with Fibonacci retracement lines. Source

Twitter ($TWTR) chart with Fibonacci retracement lines. Source

Recent Highs

Looking at the chart above, you see I chose a recent high as one end of the trend line. Using Fibonacci retracement, once there has been a pullback to one of the retracement levels, the trend is likely to continue in the same direction. The levels act as both support and resistance, depending on who is winning the battle between buyers and sellers.

Notice on December 3, the price consolidated right along the 50% line. Then it dropped back and found brief support at the Fibonacci level of 61.8%. But then the theory falls apart because it dropped below support.

What happened? Lots of Fibonacci lovers consider one further level of support or resistance. They subtract 23.6% from 100% and get 76.4%. If you do the math on this chart, the support level on December 6 is just about where that 76% line would be.

OK, then the upward trend continues and this time the price goes up and finds resistance at our next Fibonacci level, 38.2%, on the 7th. Then it drops back to our 61.8% level which is now a support line. And so on, and so forth.

Recent Pullbacks

On the chart above you see support at Fibonacci levels after pullbacks. But what if the trend is moving down instead of up? It works the same way but in reverse. When you draw the trend line using the Fibonacci retracement tool, go from high to low. The support and resistance lines are reversed.

A word of warning: I found the above chart pretty fast. But I could also find a chart where the retracement doesn’t work — where price action is all over the place and doesn’t fit the Fibonacci levels in a clean way. Also, this chart is after the fact. You’ve heard the saying: hindsight is 20/20 vision.

How to Use Fibonacci Retracement Tool in Your Day Trading Strategy

So, how should you use Fibonacci retracement in stocks you plan to trade?

Whatever you do, don’t force it!

If you’re ready to trade a stock on your watchlist, make a day trading plan.

  • Know your entry and exit points.
  • Know the level of risk and how much you are willing to lose.

Check out my Trader Checklist to see how this works.

Whatever you do, before you start making decisions based on Fibonacci retracements, it’s a good idea to see if the chart supports the theory. If you see clear support and/or resistance at the Fibonacci levels, it might be a good idea to use them as part of your plan.

Retracement Warnings

What happens if the stock does not behave? Be prepared. That’s what I always say. Preparation is key. This is not an exact science! So be prepared to cut losses fast or close part of your position to lock in profits.

Don’t get stuck in a trade gone wrong because the friggin’ Fibonacci retracement tool tells you there should be support or resistance at some level. Remember, the indicator gives you an estimated range. If it was exact and reliable every trade would be a winner, right?

Drawing Fibonacci Price Lines

Look at the Twitter chart again. Notice the upward trend. Because it is an upward trend, the retracement is low to high. If the trend was down, the retracement would be based on a high to low trend line.

One more thing: I’ve included the candle shadows (the wicks) as the top and bottom of the trend line. Some traders say it’s more accurate if you use the candle body instead of the shadows. I’m sure I could find charts to support both sides of the argument. Again, it’s not an exact science.

Optimizing Fibonacci Retracement Trading

Keep in mind that a lot of technical traders who use Fibonacci do so in conjunction with more than one other indicator. It’s common for technical traders to use Fibonacci retracements, moving average convergence divergence (MACD), and stochastics at the same time.

If you’re going to use these advanced technical indicators, use more than one to confirm your trade thesis as part of your plan. Technical analysis is a complex subject with a lot to learn. Don’t get overwhelmed; keep studying.

As for me — I like to keep things simple. When you learn how to read a chart, start by identifying basic support and resistance. You can see those levels on most charts without plotting the Fibonacci grid.

How Reliable Is the Fibonacci Retracement in Predicting Stock Behavior?

One of the ways die-hard Fibonacci traders use the ratios is to create Fibonacci projections. To do this, you use the previous price swing and project the Fibonacci levels onto the next swing.

This is where the golden ratio comes into play — 161.8% is one of the projection levels. Other projection levels include 127.2% (the square root of 1.618), 261.8% (divide a number in the Fibonacci sequence by the number two places before it), and 423.6%.

Is Fibonacci projection reliable? If the stock has a history of reacting to Fibonacci retracement levels, then projecting into the future could be fairly reliable. Be careful, however, as things can get very skewed depending on where you start and end the trend line.

By the way, if you want to dig deep into Fibonacci stuff, there are several books available on the subject. I still recommend you keep things simple. My top student, Tim Grittani, didn’t use any of these indicators his first few years of trading. When he did add one, it was VWAP (volume weighted average price).

Example of How Fibonacci Retracement Can Be Used

If you’re determined to give this indicator a go, start with paper trading.

How should you use it? First, be aware there are traders who believe in Fibonacci retracement levels and use them as entry and exit points.

By understanding this, you can use the levels to confirm or deny your trade thesis. But remember, it’s subjective and there is human psychology at play. The price action may or may not follow Fibonacci levels.

Key Tips to Follow While Using the Fibonacci Retracement Tool

Never Chase Your Losses

I tend to be a conservative trader. Plus I’ve lost some pretty hefty sums on trades over the years. Learn from my mistakes!

The worst thing you can do to try to chase a trade. So if the trade is going against you but the Fibonacci retracement tells you it shouldn’t — get the hell out!

Always follow this credo. If things go against you, get out. Close your position. Cut your losses.

Then you can take a step back and figure out what went wrong. Learn the lesson from the trade. If you start chasing losses and trying to make up for the loss you’ll lose more. So don’t do it!

Don’t Trust in Stock Promoters

I say this over and over again. The reason I mention it here is because sometimes stock promoters use technical analysis terminology to pump stocks. “Based on Fibonacci retracement, this super stock will break out to new highs and you could turn every $1,000 you invest into $14,276!” Yeah, right. That’s a huge load of B.S.

Like I keep saying, learn to play the pump and dump — but don’t believe the hype. What should you do to play it? First, apply for my Trading Challenge. That’s where you can learn how to be a self-sufficient trader

Never Stop Learning

Even if you don’t make a decision to join the Trading Challenge, you should set the intention to never stop learning. This is a lifelong skill. As such, it takes time and effort to learn. You can’t cheat success.

What’s the Trading Challenge? It’s my top course for creating self-sufficient, knowledgeable traders. My goal: create as many self-sufficient students as possible.

What do you get as part of the Trading Challenge? Glad you asked …

Access to hundreds of instructional videos, live webinars, a community of dedicated traders, and mentoring from some seriously incredible traders. It’s awesome. But you’ll have to work. It’s not a gimme — it takes dedication and serious commitment.

The Bottom Line

Fibonacci retracements might inform your trading plan. Then again, you might decide to keep it simple like I do and like most of my top students do.

There are traders out there who swear by this indicator. They specialize in trading stocks or forex based primarily on the Fibonacci retracement levels.

Should you use them in your trading? One of the basic ideas I teach as part of the Trading Challenge is that we’re all different. You need to decide if using this indicator works as part of your strategy.

I recommend you keep a watchlist. Then you can paper trade using Fibonacci retracement levels to see if it suits you.

Are you a trader? Do you use Fibonacci retracement as part of your strategy? Comment below — let me know how it’s working for you.


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Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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      Comments ( 13 )
      Hey Everyone,

      As many of you already know I grew up in a middle class family and didn’t have many luxuries. But through trading I was able to change my circumstances –not just for me — but for my parents as well. I now want to help you and thousands of other people from all around the world achieve similar results!

      Which is why I’ve launched my Trading Challenge. I’m extremely determined to create a millionaire trader out of one my students and hopefully it will be you.

      So when you get a chance make sure you check it out.

      PS: Don’t forget to check out my free Penny Stock Guide, it will teach you everything you need to know about trading. :)

      Thanks for describing the Fibonacci replacement. Now I need to look at the current trading toll trade station and see how I can implement this methodology into my trading strategy

      Very interesting info.
      Keeping my self learning.

      Dear Timothy,
      I’m a close to retirement age women and I have just lost third of my retirement money, which I have saved penny-by-penny working hard my entire life! I paid tons of money to few some proclaimed traders “gurus” but didn’t learn much from them.
      I’m sooooo happy that I have found you!
      I know that you perhaps have thousand of people and can’t assist them individually but I’d dare to ask you (if I may) for your more personalized help to me so I won’t lose rest of my hard earned money and go totally broke.
      Respectfully yours,

      Fibonacci mainly works with Forex trading according to charts and when I’m paper trading

      Heard alot about fibonacci retracements through the market wizards books but personally the levels just aren’t statistically significant enough versus just using s/r levels or some other indicators.

      You started to exploit the characteristics of the indicators.. ��

      Universe is fibonacci. ��

      I would like to thank you for the efforts you have made in writing this blog. Very Informative post

      I use fibs and pivots as THE core to my strategy. Plus a specific setup of Stoch’s. Helps to ‘block’ my trades. BUT proper placement and execution of stop levels is the KEY to consistent y/y profitability. Challenge student.

      Mr Sykes ,you have crazy energy, are you doing Nofap, the dragon you know

      what happened to the webinar today? Been waiting for it but no webinar?

      Leave a Reply Cancel reply

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      Fibonacci Forex Trading Strategy With Reversal Candlesticks

      The Fibonacci Forex Trading Strategy With Reversal Candlesticks is simply about using fibonacci retracement in conjunction with reversal candlesticks.

      If you have traded forex long enough, you will notice that sometimes, price has an uncanny ability to reverse exactly at or around fibonacci levels.

      Now, using fibonacci levels alone to execute a trade is not ideal in my opinion. You need to confirm it with reversal candlesticks.

      The fibonacci retracement tool works best in a trending market and it will be quite useless if the market is not trending.

      Timeframes: 15mins and above would be better.

      Currency Pairs: Any

      Forex Indicators/Tools: fibonacci retracement tool


      1. Market must be in a clear uptrend and eventually it will start to fall back down.
      2. Use the fibonacci tool and click and drage at the start where the trend has started to where the trend has started to reverse back down and that would give you the fib retracement levels to watch out for.
      3. The fib levels to use are 38.2, 50 and 61.8. Just wait to see if price reverses down to any of these levels and if it does so you move to the next step below.
      4. Watch to see if a bullish reversal candlestick forms, that will be your buy signal. So what you do is place a buy stop pending order just 2-3 pips above that candlesticks high.
      5. For take profit, use the previous swing high zone or level for that (see chart below).
      6. Place your stop loss 3-5 pips below its low. If price breaks upwards, your pending buy order will be activated and you will be in a trade
      7. If you get stopped out on 38.2 level, and price goes down to 50 level, do the same thing again. If you get stopped out on 50 level and if price goes down to the 61.8 level, repeat the process.

      Here’s a chart of a buy trade setup explaining the process:

      1. Market must be in a clear downtrend and eventually it will start to rise up.
      2. Use the fibonacci tool and click and drage at the start where the trend has started to where the trend has started to reverse back up and that would give you the fib retracement levels to watch out for.
      3. The fib levels to use are 38.2, 50 and 61.8. Just wait to see if price reverses down to any of these levels and if it does so you move to the next step below.
      4. Watch to see if a bearish reversal candlestick forms, that will be your sell signal. So what you do is place a sell stop pending order just 2-3 pips below that candlesticks low.
      5. For take profit, use the previous swing low zone or level for that (see chart below).
      6. Place your stop loss 3-5 pips above its high. If price breaks downward, your pending sell stop order will be activated and you will be in a trade
      7. If you get stopped out on 38.2 level, and price goes up to 50 level, do the same thing again. If you get stopped out on 50 level and if price goes up to the 61.8 level, repeat the process.

      Here’s a chart of a sell trade setup explaining the process:

      DISADVANTAGES OF THE Fibonacci Forex Trading Strategy With Reversal Candlesticks

      • not all the time price will move back to a Fibonacci retracement level
      • price can sometimes move to a fibonacci retracment level and not respect it which means you can get stopped out.

      ADVANTAGES OF THE Fibonacci Forex Trading Strategy With Reversal Candlesticks

      • the reason why fibonacci works is because lots of traders use it so its best to pay attention to it.
      • the risk to reward ratio of this trading system can be in excess of 1:5 and over if the market conditions are just right.
      • its really simple forex system the allows you to almost pick the tops and bottoms…in other words when you combine it with reversal candlestick for your trade entries.

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