Forex Fibonacci Strategy for Daytraders

At some point in every trader’s career, it’s impossible to deemphasize the need for Fibonacci retracement tool in plotting crucial levels in the market.

The Forex Fibonacci strategy for day traders is designed to allow short term market following price retracement.

Chart Setup

MetaTrader4 Indicators: Stochastic.ex4 (10, 3, 3), Stochastic_Cross_Alert.ex4 (default setting), Trendline

Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour, 4-Hour, 1-Day

Recommended Trading Sessions: Any

Currency Pairs: Any pair

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Download the Forex Fibonacci Strategy for Daytraders

Buy Trade Example

Fig. 1.0

Strategy

Long Entry Rules

Enter a buy order if the following indicator or chart pattern gets displayed:

  1. Draw the Fibonacci retracement level on an uptrend along with the trend line depicting price rally. We’ll try and locate the right Fibonacci level where price retracement will push price back in the direction of the previous rally. This is achieved by taking note of the Fibonacci level that corresponds to oversold (when the stochastic lines cross at a value of 20 or less) conditions within the stochastic indicator. These conditions are indicative of a buy signal.

Note that retracement is seen to begin where price broke below the trend line.

  1. If the lawn green upward pointing arrow of the Stochastic_Cross_Alert.ex4 custom indicator forms below the candlesticks, it is a signal to go long on the pair of interest.

Stop Loss for Buy Entry: Place stop loss 2 pips below immediate support.

Exit Strategy/Take Profit for Buy Entry

Exit or take profit if the following rules or conditions takes precedence:

  1. If the lines of the stochastic indicator crosses at a value of 80 or more, it is a signal to exit or take profit forthwith.
  2. If a red downward pointing arrow of the Stochastic_Cross_Alert.ex4 custom indicator aligns above the candlestick, price is said to be making a U-turn, as such an exit or take profit will do.

Sell Entry Rules

Take up sell order(s) if the following holds sway:

  1. Draw the Fibonacci retracement level on a downtrend along with the trend line depicting price dip. We’ll try and locate the right Fibonacci level where price retracement will push price back in the direction of the previous price dip. This is achieved by taking note of the Fibonacci level that corresponds to overbought (when the stochastic lines cross at a value of 80 or more) conditions within the stochastic indicator. These conditions are indicative of a sell signal.

Note that retracement is seen to begin where price broke above the trend line.

  1. If the red downward pointing arrow of the Stochastic_Cross_Alert.ex4 custom indicator forms above the candlesticks, it is a trigger to sell the currency pair of focus.

Stop Loss for Sell Entry: Place stop loss 2 pips above immediate resistance.

Exit Strategy/Take Profit for Sell Entry

Exit or take profit if the following holds true:

  1. If the lines of the stochastic indicator crosses at a value of 20 or less during a sell trigger, an exit or take profit is advised.
  2. If a lawn green upward pointing arrow of the Stochastic_Cross_Alert.ex4 custom indicator aligns below the candlesticks, price is said to be making a U-turn, as such an exit or take profit will suffice.

Sell Trade Example

Fig. 1.1

Free Download

Download the Forex Fibonacci Strategy for Daytraders

About The Trading Indicators

The Stochastic_Cross_Alert.ex4 is a custom indicator that is derived from the Stochastic and Moving Average MT4 indicator.

The workings of the Stochastic_Cross_Alert.ex4 is such that a buy/sell signal is issued when the arrows on the chart is painted Lawn green (upwards)/red (downward).

The Stochastic Indicator is a momentum oscillator that is attributed to George Lane. The indicator is made up of two lines, the %K fast line and the %D slow line, while it oscillates between 1 and 100.

Essentially, the Stochastic gauges the relationship between an assets closing price and its price range over a specified time period.

A trend line is a negative or positive slope that is formed by connecting two or more high or low points respectively.

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