FIBONACCI RETRACEMENT LEVELS

Trading with Fibonacci is one of the best method. It does not lag like other technical indicators as it is based mainly on price action. It is also very easy.

For normal trends, price will usually retrace to 3 levels: 78.4, 61.8 and 50.

For strong trends, price may just retrace to 38.2 and continue its trend.

Draw FIB lines on 4H charts, if there is no trend in 4H chart, I can move down to the 1H chart. But I will try not to use lower TFs as it may not be as accurate.

Draw the FIB of the last trend from peak to bottom. Remember to draw from left to right. So in an uptrend, we start from the low and draw to the high. And vice versa for downtrend, start from the high to the low.

From the image, I have drawn from the low to high. Price has retraced to the 61.8 level. As you can see the next candle is a long candle. (confirmation candle)

A morning star pattern is formed. Which shows a bullish reversal. 

I would have placed a long trade at the open of the candle after the confirmation candle which confirms the morning star. 

The trade is already positive 10 pips for me. If price retrace at 61.8 level, expectations will be for price to climb up to the 161 level. From this setup I am aiming for a 150pips.

My stop loss will be below the 78.4 level. Thus I am only risking 30 pips to gain 150pips.

So let me recap how I trade using FIBONACCI.

FIRST, I draw the FIB level from LEFT to RIGHT.

NEXT, I see a bounce on one of the 3 FIB retracement levels.

THEN, I will confirm the bounce, using a confirmation candle which is usually the immediate candle after the one that hit the retracement level.

FINALLY, I confirm a reversal candle pattern on the chart.

I THEN PLACE A TRADE AT THE OPEN OF THE CANDLE AFTER THE CONFIRMATION CANDLE.

This sound easy, but of coz there may be failures too. So it all depends on money management. I must be careful.