Fibonacci retracement are ratios which are used to find the retracemnt levels or the key levels on which market can react. Most popular and effective ratios are 61.8 and 38.2. With the help of this forex strategy and Fibonacci levels we can predict the market retracement or pullback in advance. Mostly the Fibonacci retracements applied after decline to predict or forecast the time and length of the bounced trend. Fibonacci retracements can be combined with other popular indicators to get maximum output and accurate results.
COMBINATION OF INDICATORS:
Fibonacci Retracement can be used by combining other indicators with it. There are different combinations out there but we will suggest you the best combination, because without perfect combination you will not be able to get max from it.
Here are some better combinations
MACD (Moving average convergence and divergence)
Now we will tell you the most effective method of using Fibonacci retracements. We will go with the first combination of indicators (MACD and Moving average) Now you have to follow the steps.
Open MT4 or any other trading platform
Select the product on which you want to trade ( example : currency pair)
Place the Fibonacci retracements.
Q: How to place Fibonacci retracements ?
Just select time period ( m30, H1, H4) and adjust the zoom of the chart. Then click on the Fibonacci option and now place one end of Fibonacci retracement on the lower price candle of the chart or lowest price touched, and place the other end at highest price touched in chart frame.
Place MACD on chart.
In this forex strategy the MACD is used with special method if you want to learn it then click here.
After setting the trap just wait for the price to touch the any Fibonacci level and from upside or downside. When the price will touch any level, we will see the price action and the candle stick patterns first, after that we will see the MACD value on that level and compare it with that value which was previously on that level or price. In the above picture you can see that on the level 1 its the first try of price to break the support level but we can see that the value of MACD is not very low which means price did’t had enough power to break that level. So it retested that level again but again the MACD shown us that it cant’t break it. After that it retested again but again the value even decreased and it gave us the trend turning signal. Now our trade execution points are 2 and 3.
Money Management for this strategy.
In this strategy you have to manage your risk to reward ratio smartly. If you are a day trader and don’t want to wait for few days then just trade on three middle ratios and place stop loss within these three ratios. If you are a long term trader then we suggest you to go with the MACD FOREX STRATEGY because in that strategy you can catch a full trend. In this strategy put trade with stop loss and take profit ( T/P , S/L ).
NOTE : This strategy is applicable for every currency pair and commodities.