The Favorite Fib Currency Trading Strategy for Swing Traders

The Favorite Fib Currency Trading Strategy for Swing Traders

My favorite Fibonacci is a Fibonacci based strategy that takes advantage of momentum. It can be used on various time frames and markets, including major forex, stock indices and commodities, providing the trader with endless opportunities.
The strategy can be used, for example, after some major economic news – ideally, in the early stages of the movement after the news. But if the news only causes a corrective rally or selling within an established trend, then this strategy will not work either. They are best suited for markets that are in a clear strong trend – for example, when the price is making new highs or lows all the time, for several years or several months.
The higher the time frame, the more effective the preferred Fibonacci strategy. It is usually used on the hourly or four-hour time frames, although it can sometimes be applied to the daily time frame as well. The shortest time frame in which you can use this strategy is around 15 minutes.
If the trade is based on a higher time frame, it is a good idea to zoom in on the five minute chart to improve entry.

How does my favorite Fibonacci strategy work
The preferred Fibonacci strategy is based on some Fibonacci retracement levels and extensions: the 38.2 percent and 50 percent retracement levels (the latter is not technically the Fibonacci level), and the 127.2 percent, 161.8 percent and 261.8 percent Fibonacci extension levels.
To understand how the strategy works, let’s say that after a strong upward movement (for example, from point A to point B), the market retraces slightly (to point C) due to profit taking and/or higher picking, before continuing in the original trend (after point C). NS).
The strategy requires three price swings – moving from point A to point B, from point B to point C (correction), and from point C to point D (extension).
In the Favorite Fib strategy, you’re interested in some part of the CD leg of the move — the bit beyond point B, where entry is based. The profit target would be determined by a Fibonacci extension level of the BC move (more on this later).
One condition for this strategy to work well is that you need momentum. By definition, this implies that point C should represent a shallow retracement of AB, and then a continuation in the original direction, beyond point B. So, if price retraces more than 50 percent, or too much time elapses before it breaks point B, then the entry signal would not be valid.
In other words, for optimal entry signal, you need a strong move from point A to point B; a relatively quick and shallow retracement of less than 50 percent to point C; and then a continuation toward point D.
When point C is established, all the strategy’s parameters can be determined.
The entry will depend on the break of point B, and the goal is to ride the movement towards point D, which will be the Fibonacci level, determined by the swing BC.
For a buy (sell) position, entry can be via a buy stop order (sell stop) a few pips / pips above (below) point B, or it can be via a market buy order / limit after point B is broken.
Entry via a stop order guarantees the start of trading. However, in the case of a false breakout, it could mean buying (selling) right at the top (low). Moreover, if there are gaps in the market, the entry may not be at the same level that the trader has chosen.
Entry via market or limit order allows the trader some time to determine if the breakout above (below) point B is true or false. If the price settles above (below) point B for a few minutes, for example, the trader may want to buy (sell) at the best available price. However, the danger is that the market moves quickly towards the target without retreating, and the trader loses the opportunity.
If the entry is based on a higher time frame – such as the four hour chart – the trader may want to hold and zoom in on the five or ten minute chart and wait for the price to close above (below) point B in the lower time frame before buying (selling).

My favorite Fibonacci strategy has two goals:
> 127.2% level from BC, at which point the stop loss is adjusted to break even to eliminate risk
> Extension level 161.8 percent of BC (or sometimes 261.8 percent), at which point the position should be closed
One way to estimate the level to which the price is likely to extend is to look at the retracement of the AB swing (ie point C). If the recovery is about 38.2 percent or less, then point D can be at 161.8 percent or sometimes 261.8 percent of the BC extension.
However, if the price makes a deeper correction – for example, to the 61.8% or 78.6% Fibonacci level of AB, then you should expect point D to complete around the 127.2% extension of BC. Of course, this would not be a valid entry in my favorite Fibonacci indicator, because the retracement is greater than 50 percent.

stop loss
For a buy (sell) position, the stop loss will be less than (higher) point B, and ideally below (higher) a small fractal within the larger swing. The maximum distance between the stop loss and the entry should be less than the distance between the entry and the profit target. In other words, the risk-reward ratio should be better than 1:1 (ideally, 1:2 or better).

Final notes
> For a higher probability trade, entry in the direction of the primary trend should be long or medium term.

The speculator should be aware of other long-term technical levels when trading the preferred Fibonacci strategy. For example, if the 200-day moving average is at 1.8560 and the target for the long position is at 1.8580, then this trade should not be taken.

In this case, it might be better to take profits at around the 200-day average rather than hope the price hits the 161.8 percent extension (original profit target which was based on a smaller time frame).
The moment you notice that you are hoping for something to happen is when you know the trade is in trouble – get out as soon as possible.
> The trader should avoid entering into simultaneous opposing trades in similar markets (eg buy on DAX and sell on FTSE, buy on NZD/USD and sell on AUD/USD, etc.). If the trader is feeling down about the Australian dollar and at the same time bullish on the New Zealand dollar, they should look for a short position on the AUD/NZD instead.
> If the price breaks point B, triggers the entry order, and then loses momentum before reaching the first target (127.2 percent), the trader must close the trade at the best available price (even if it is worse than the entry price – why wait for it to be stopped?). After all, the whole point of entry was based on the expectation of a generous continuous movement, which did not happen.
You cannot force the market to give you what you want. Never blame the market for getting it wrong – it all comes down to your ability (or lack thereof) to respond to changing market dynamics or conditions.