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

 

TRADING RULES

Buy setup:

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

Fibonacci Forex Strategy

 

Sell Setup:

  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:

Fibonacci Forex System

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.
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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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2 Responses

  1. ibrar ahmad