Lighting Fibonacci Retracements With Candlesticks

Hello and welcome to another edition of the bulls vs the bears.  Last we touched on Combining Fibonacci Retracements with Trend Line Analysis. This week we are lighting Fibonacci Retracements with candlesticks. No, we are not doing a night vigil on the collapse of the forex market. Far from that. We are merely combining Fibonacci retracements with candlestick patterns –  the Japanese variety.

Before we move on to today’s lesson. Let me give you a little tip. If you know you are a little rusty on reading candlesticks look up Fundamentals of Reading Candlestick Patterns   and You Need To Know Ten of These Candlestick Patterns. Now onward.

Like I stated earlier, we are going to learn how to to combine the Fibonacci retracement tool with candlestick patterns. With this analysis we are looking  for what we call in the forex business as exhaustion candles. Now exhaustion candles are called such not because they look worn out. But they reflect the level of buying and selling pressure among the big boys- not to mention the fact they reflect the indecision among traders as to whether to  buy or sell. Also they give you an idea of where the next trend is going to come from.

Let’s take a look at an illustration using the 1 hour chart for the EUR/USD pair.

As you can see the the EUR/USD pair have been in a bullish mood for a while  Then all of a sudden the big players seem to be taking a break. I guess the burning question is ‘When should I get in on this trade?” Well let’s  pull out the Fibonacci tool and see where it leads us.

Well as you can see the Swing High has been set at 1.3364 with the Swing Low at 1.2523. Now let’s see whether it’s safe to make our entry in the next chart

I guess it’s more than safe to make your grand entry. Evidently the bulls are shooting to the heavens. The 50.0 fib level held up for the bid with buyers pushing the EUR/USD pair  further up the hill. Let’s see whether the 61.8 fib level was able to keep its shape.

Look what we’ve have here! The 61.8 level is doing just fine. Even better we find a doji sitting right on this barrier. In  case you don’t know by now the the doji is an exhaustive candle reflecting indecision or equality among the bulls and bears. In light of this information the questions that should be running through your mind are : Are the bulls running out of steam? Is resistance holding at the retracement level? You need to answer these questions because other traders are also watching that level like a hawk.

You may also be  thinking “Is it time to sell”? The chances of a reversal are quite high. Just make sure you have a  risk management plan in place just in case the market decides to head south. The next chart should answer all these questions for us

As you can see it’s definitely time to put in a sell order. Why? because  the doji has formed, meaning the buyers are worn out from battling the sellers. So get ready to make some serious doe!

However, the bears stall for abit. But not for long  because they  then head straight down the slope after the brief  respite. Obviously the bulls were too tired to lock horns with the bears, which then  allowed the bears to seize the initiative. Eventually price nose-dives all the way down to the Swing Low. The bears racked up 500 pips along the way –  A candidate for trade of the year if you ask me.

If you want to learn more about swing trades look up Do A Little Swing Trading

So as you can see the Fibonacci tool is very useful in signalling whether a retracement level will keep its shape or not.  Even better you don’t need to put in those scary entries called limit orders. There are no grey areas with the Fibonacci tools.  Of course you may start getting nervous about whether the support levels will keep their shape since we are dealing with event zones and not necessarily specific levels. This is where  your knowledge of candlestick formations  come in real handy.

Just wait for the Fibonacci bar to form below or above a Fibonacci level to confirm whether you should put in an order or not. If  you  see  fibonacci the bar forming go ahead and put in your trade order since that’s your cue that the   retracement level is holding.

That’s a wrap for ”Lighting Fibonacci Retracements With Candlesticks ”  Next week we’ll  learn how to use Fibonacci Extensions to Take Profits.”

Til next time take care

Opening Of Live  Forex Trading Account 

If you’re looking to open a live trading account sign up with EasyMarkets.

 

Advertisements

Combining Fibonacci Retracement With Trend Line Analysis

Hello and welcome to another edition of the bulls vs the bears. Last week we touched on How to Map Out Support and Resistance Areas With Fibonacci Indicator. Today we are combining Fibonacci Retracement with Trend Line Analysis. But  before we go on , if you are not sure about drawing trend lines  look up my post Drawing and Trading Trend lines. Failure do so could result in irreparable damage to your health.

Now that we’ve gotten that little alert out of the way, let’s move on with today’s lesson.

Whenever the bulls or the bears  are in control you make use of Fibonacci retracement levels to get in on the trend. So all you have to do is to look for Fibonacci levels that line up with the trend. Let’s take a look at the 1 hour chart of the AUD/JPY pair.

Rising trend line on 1-hour chart of AUD/JPY

As you can see the bulls  have been running amok on the  bullish trend line.  You  see this and you say yourself”Now will be the perfect time to make my trade once the pair touch the trend line.” But then  that little voice in your head counters with a whisper saying “How about you pull up your forex toolkit and get your Fibonacci toolkit so you can get an accurate entry price?”

Fibonacci retracement levels intersecting with rising trend line. Potential support?

As you can see the Swing Low has been plotted at 82.61 and the Swing High at 83.84. See how the 50% and 61.8% Fibonacci levels have been intersected by the rising  trend line. Hmmm…..Something tells me these two levels could be possible levels of support. Let’s find out. Shall we?

Trend line and support at 61.8% Fibonacci retracement level hold

Voila! We have a level of support at the 61.8 level. Price ricochets nicely before heading for the hills. Put in  some buy orders here and you make  the grandest  entry into the price action.

After touching the trend line, price bursts through the  nearest Swing High and heads for the hills. So it does pay to have the Fibonacci tool even if you plan on cracking the trend line a second time. When you see both a diagonal and a horizontal support/horizontal level just know that other traders are eyeing these levels like a hawk. They ‘re getting ready to pounce when the opportunity presents itself.

And, just like other drawing tools, trend line analysis can be subjective. No two traders see trend lines the same. Their binoculars see differently. But one thing is certain- You will see a trend. But once you see a trend take shape, start looking for ways to go long  to give yourself a chance to laugh all the way to the bank.

That’s a wrap for ” ”. Combining Fibonacci Retracements with Trend Line Analysis.”  Next week we’ll  touch on  Lighting Fibonacci Retracements with Candlesticks.  Not to worry we’ll not be doing a vigil.. We’ll just use the Fibonacci too to find candlestick patterns.

Til next time take care

Opening Live Account

If you’re looking to open a live trading account sign up with EasyMarkets.

How to Map Out Support and Resistance Levels Using Fibonacci Indicator

Hello and welcome to another edition of the bulls vs the bears. Last time  we learnt that  the fibonacci was not full proof. And that it could do a 360 on you. This week we are going to learn how to map out  support and resistance levels using Fibonacci  indicator.

Like we said last time, the Fibonacci tool is quite useful. But it can’t be used in isolation. It should be used in unison with other tools to discover the sweet spotup trades that you’ve been  salivating about. So we ‘ll take what we ve learnt and go hunting for those spotups.

If your Fibonacci tool happens to spot  support and resistance levels, combined with other price areas, then chance of price  shooting high from these areas are quite good.

Let’s take a look at an example of such a scenario using a daily chart of USD/CHF

Daily chart of USD/CHF with Fibonacci retracement levels

As you can see the bulls have been running the show. All these green candles make it crystal crystal clear as to who is in charge. The question you should be asking yourself is “When do I make my entry?” Using the Fibonacci tool, you you see the low at  1.0132  as your Swing Low and the high at  the high at 1.0899  as your Swing High. So your chart looks all set with all these Fibonacci retracement levels.

Let’s see how resistance support pans out in the next scenario on the same chart

Resistance turned support at 50.0% Fib?

As you can see we’ve laid a solid foundation to increase our chances of finding a solid entry. But the next question we need to ask is “Where do we enter?

Well as you can see 1.0510 put up great resistance. And coincidenta;;y it just so happened to align with the 50% level Fibonacci retracement level. As you can see the resistance got breached. And once it turns into support, that will be the perfect time to put in your buy entry. Now let’s look at where to place your buy entry.

Resistance turned support at 50.0% Fib holds and price eventually makes a new high

If you put ion your buy order around the 50% Fib level, you should be in a good place.  However we see some hair raising moments when the support level takes absorbs a second bite at the cherry. Price tries to break through the support barrier but is unable to close the deal. Eventually the pair do break through the barrier and continue with their journey.

The same setup can be duplicated on a downtrend. Just look for price levels with similar action from previous price action.  Come to think of it  the probability of price taking a ricochet from these levels are quite high. I can hear someone saying “Why do you say that?”  well support/resistance areas are very popular zones to place buy orders. As such buyers will be keeping a close watch on these zones.

While it’s not etched in stone that price will shoot for the hills from these levels, you can be confident about your chances of your trade entry returning a healthy profit.  IT’s all a question of probabilities. If you stick with trades with a high probability of success, you will come out smelling like a rose.

That’s a wrap for ” ”. How to Map Out Support and Resistance Levels Using Fibonacci Indicator.” Next time we’ll learn how to Combine Fibonacci Retracement with Trend Line Analysis.

Opening Of Live  Forex Trading Account

If you’re looking to open a live trading account sign up with EasyMarkets.

Fibonacci Can Do A 360 On You…Watch Out

Hello and welcome to another edition of the bulls vs the bears.  Last time we kicked off  our series on the Fibonacci tool with an intro on Doing the Fibonacci. We basically learnt  that the Fibonacci tool was useful for placing trades at support and resistance levels. We event learnt how to to enter a trade using Fibonacci retracements.

However we are going to learn a very painful truth about the Fibonacci indicator. While it’s fun doing the Fibonacci, the Fibonacci indicator  can do a wicked 360 on. you.  In as much as it is able to predict whether support/resistance levels are going to break, they don’t always break. Some  of you are scratching your head saying”Wait a minute. I though you said Fibonacci could predict the future.” Well sure. But it’s not exactly bullet proof either.

Let’s look at a few examples starting with  a 4 hr chart of GBP/USD.

Resistance at the 50.0% Fibonacci retracement seems to be holding

Here the bears have been running things. So you seek the help of the Fibonacci indicator to get you a solid entry point. You pair a Swing  Swing High at 1.5383, with a swing low at 1.4799. As you can see the currency pair has been holding it down at the 50% level. And you’re like” Time to go short on this deal.”

Well News flash! If you so much as try to put in an order at this level you’ll do serious damage to your account.  The next graphic will explain why.

Fibonacci retracement levels failed to hold and price broke through for new highs

What didn’t realize wat that the Swing  Low had mounted a comeback. It managed to rally above the Swing High point.

What’s the moral of the story here?Yes Fibonacci retracement levels create a high probability of success. But they don’t always work. In such a situation you may not know if price will do  a U-Turn to the 38.2 level and restart the trend.

Then again price may hit the 50% or 61.8% levels before doing the turnaround.  Better yet, price may just override the Fibonacci and bulldoze its way past all the key levels like a freight train. You  need to understand that the bulls do not always resume their uptrend after discovering temporary support or resistance but instead zoom past the Swing Low.

Also you need to determine which Swing Low  you want to use. The Swing Lows are not  etched in stone, especially when the trend is very foggy. Not everybody sees charts the same way. Two people may have their biases concerning time frames and technical analysis. How do we clear that fog? By combining the fibonacci with other tools in your forex tool box such as moving averages. This should help give you a higher probability of success. For more information on moving averages look up  We Are Moving Averages Part I and II. 

 

That’s a wrap for ”Fibonacci Can Do A 360 On You…Watch Out  ”. Next time we’ll try and  solve   the support/resistance  quagmire by using the Fibonacci indicator in combination with other forms of support and resistance levels.

Till next time take care.

If you’re looking to open a live trading account sign up with EasyMarkets.

How To Make Your Grand Entry onto the Forex Market With The Fibonacci Indicator

Hello and welcome to another edition of the bulls vs the bears. Today we are going to learn how to make your grand entry into the forex market with the Fibonacci Indicator  If you think we’re going to learn the latest hip hop dance  you’re at the wrong address. We’re going to learn how to use a very famous  forex indicator called the Fibonacci.

Remember when I mentioned the Fibonacci tool in   my post “How To Calculate Risk Reward Ratio Without Blowing Your Forex Trading Account?” Well  we are going to do an in depth study on this indicator. Now I’m not a huge fan of indicators. They’re  really not part of my trading menu.  But I will make an exception  because it’s quite popular among But the Fibonacci comes highly recommended among traders because of its usefulness in analysis such us support / resistance, risk/ratio, stop losses,  retracement, e.t.c

So here is what we are going to do. I’ll give you the definition, give you the background to Fibonacci and then show you two instances by which you can use the fibonacci rule.

What exactly  is the Fibonacci Indicator?

Well Fibonacci the Fibonacci indicator  uses retracement  to define areas of support and resistance on the charts. You basically use the Fibonacci to draw static horizontal lines to determine where possible support and resistance levels will occur. Now the fibonacci tool was name after a famous Italian Mathematician called Leonardo Fibonacci. He basically had a flash bulb moment when he stumbled on a series of numbers describing the natural arrangement of things in our universe.

Now how did he derive these numbers? He started with 0 followed by 1 and then he added 0+1 to get the third number 1. Fibonacci added the third number(1+1) to get 2 and then the third number and so on. So   you have ratios  in the following sequence:0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144….  Don’t scratch your head about manually calculating these numbers. Your  MT4 software does all the leg work. The most important thing is understanding  the workings behind the the Fibonacci tool.

Speaking of which, the only ratios you need to know for the Fibonnaci are as follows:

Fibonacci Retracement Levels

0.236, 0.382, 0.500, 0.618, 0.764

Fibonacci Extension Levels

0, 0.382, 0.618, 1.000, 1.382, 1.618.

There is one little catch though. In order to apply the Fibonacci  indicator  you need to know how to  identify swing high and swing low points.  In case you’ve forgotten, a swing high is a candlestick with two lower highs on its left and right. While a swing low is a candlestick with two higher lows on its left and right.  For more information on swing points look up Do A Little Swing Trading.

I guess the burning question  on everybody’s mind is:

How Do We Use Fibonacci Retracement To Enter A Trade?

Before you consider kicking the the Fibonacci tool into  action, there is one thing you need to understand about the Fibonacci. And that is, the Fibonacci only works when there is a strong trend in the works. If the bulls are in action you go long(or buy) at the retracement level at a Fibonacci support level. But when the bears take over, you do the complete opposite. You go short(or sell) on a retracement at a Fibonacci resistance level.

Fibonacci retracement levels are quite useful to the trader. Their job is to attempt to predict where price will hit in the future. You could say they play a prophetic role. Some of you are probably wondering”What’s the theory behind the workings of the retracement levels?”  Well, the secret is whenever either the bulls or the bears start a new trend  price will retrace or pull pack to a previous level before continuing on their journey.

I guess the next question  we have to answer is

How Do we Find The Fibonacci Retracement Levels?

Like I alluded to earlier, you need to locate the latest swing highs and swing lows. If you see the bears in action click on the Swing High in your MT4 chart and drag your cursor to the most recent Swing Low. But if you happen to spot the bulls  click on the Swing Low and drag the cursor to the most recent Swing High. Let’s take a look a look at how to make those retracement levels work on the forex markets, starting with the uptrend

Daily chart of AUD/USD with Fibonacci retracement levels

Ladies and gentlemen, This is a daily chart for the AUD?USD pair in the uptrend. The horizontal and diagonal lines  represent  retracements levels of the Fibonacci indicator.  Look out for .6695 close to the .7000 line. As you can  see you plot Fibonacci retracement levels  by clicking on the Swing Low at .6995 on April 20  and then drag the cursor to the Swing High at .8264 on June 3. This creates a diagonal  line right across the chart.

Voila! your software then calculates  the retracement levels like clockwork.  You don’t need to pull your hair out doing any weird calculations. Oh! by the way the faded numbers next to the shaded areas on the shaded areas in the far right corner are the retracement levels.

Let me break this further down in simple English. IF the AUD/USD pair pulls back from a new high  one of the retracements levels will provide support as the pair look for a landing spot. Why? because  traders will be placing their buy orders at the retracement levels as price does its pullback.

Now let’s see what happens with the Swing High

Fibonacci Retracement: 38.2% Fib level held as support

Well we see that price retraced to the 23.6 level and continued with its slalom run  for the next few weeks.  See how it tried to breach the 38.2 level but failed to close the deal. See how price resumed its bullish run on July 14th and eventually breached the Swing High. It’s pretty obvious that putting in a buy at the 38.2 level would have been profitable long term.

Now let’s look at retracement levels in the downtrend using the 4 hr chart of the EUR/ USD pair.

4-hour chart of EUR/USD with Fibonacci retracement levels

Look at the Swing High at 1.4195 and the Swing Low at 1.3854.  The shaded areas in the far right corner are the retracement levels. What’s the expectation here? That  if price retraces from this Swing Low, it could run into resistance at one one of the resistance levels. This is because traders wanting to trade the downtrend may want to put their sell orders  at that level.

So what happens next?

Fibonacci Retracement: 50.0% Fib level held as resistance

Something interesting is happening here. First price mounts a daring rally, and then gets stopped  in its tracks below the 38.2 level, before trying to breach the 50% level. If you place your sell orders at the 38.2 or 50% level you stand the chance of making some ridiculous profits.

Now what did  we learn about price from these two examples? Price run into into brief support or resistance at Fibonnaci retracement levels. Now if most traders believe a retrace will occur at a Fibonacci level and are anticipating price to touch that level, then all those pending orders will have a major influence on price.

 

That’s a wrap for ”  How To Make Your Grand Entry onto the Forex Market With The Fibonacci Indicator”. Next week we’ll find out  what happens when fibonacci retracement levels do a 360 on you.

Till next time take care.

Opening Of Live  Forex Trading Account

If you’re looking to open a live trading account sign up with EasyMarkets.