Simple Fibonacci Forex Strategy

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Simple & Consistent

Fibonacci Method

Prepared by: Simone Guy

{Free learning resource: NOT FOR RESALE} {Free learning resource: NOT FOR RESALE}

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Overview

This is a mechanical trading method that is based on Support and Resistance. The tools that are used to This is a mechanical trading method that is based on Support and Resistance. The tools that are used to identify entries, support & resistance, targets and exits are:

identify entries, support & resistance, targets and exits are: •

• FibonacciFibonacci •

• Trend LinesTrend Lines •

• FractalsFractals

This method is NOT specific to a particular pair or timeframe and can be applied based on your trading This method is NOT specific to a particular pair or timeframe and can be applied based on your trading personality, time and risk level.

personality, time and risk level. Other important knowledge: Other important knowledge: Candlestick

Patterns-Candlestick Patterns- Resource AResource A,, Resource BResource B

On this thread, however, it is traded on 15M charts. Better results are achieved trading this method On this thread, however, it is traded on 15M charts. Better results are achieved trading this method between 3:00am EST and 12:00pm EST.

between 3:00am EST and 12:00pm EST.

Content

•

• FUNDAMENFUNDAMENTALS TALS ... .... Pages Pages 2-92-9 •

• FibonacciFibonacci

o

o TrendsTrends o

o Fibonacci ABCD patternFibonacci ABCD pattern o

o Fibonacci Retracements and ExtensionsFibonacci Retracements and Extensions

•

• Understanding Support & Resistance (S&R)Understanding Support & Resistance (S&R)

o

o Trendlines & Trendline 1-2-3 SetupsTrendlines & Trendline 1-2-3 Setups

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• THE THE METHOD METHOD ... ... Pages Pages 10-2110-21

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o Understanding Bobokus Fib LevelsUnderstanding Bobokus Fib Levels o

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Trends

UPTRENDS

UPTRENDS – – A A market market can can be be identified identified as as being being in in an an uptrend uptrend if if higher higher LOWsLOWs and higher HIGHs are being created.

and higher HIGHs are being created. DOWNTRENDS – A market can be identified as being in a

DOWNTRENDS – A market can be identified as being in a downtrend if higherdowntrend if higher LOWs and lower HIGHs are being creat

LOWs and lower HIGHs are being creat ed.ed.

Uptrend Example Uptrend Example

Downtrend Example Downtrend Example

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So if the market is in a

So if the market is in an UPTREND and then it starts creating lower n UPTREND and then it starts creating lower highs and lows, even if temporary,highs and lows, even if temporary, we assume that we are

we assume that we are shifting to a downtrend.shifting to a downtrend.

And if the market is in a DOWNTREND and then it starts creating higher highs and lows, even if And if the market is in a DOWNTREND and then it starts creating higher highs and lows, even if temporary, we assume that we ar

temporary, we assume that we are shifting to an uptrend.e shifting to an uptrend.

As the market trends it waves to achieve its destination like ebbing and flowing. So for example when As the market trends it waves to achieve its destination like ebbing and flowing. So for example when waving or trending upwards, waves will look like this:

waving or trending upwards, waves will look like this:

Low to High, High to Higher Low, Higher low

Low to High, High to Higher Low, Higher low to Higher Highto Higher High When waving or trending downwards, waves will look like this:

When waving or trending downwards, waves will look like this:

High to Low, Low to Lower High, Lower High to

High to Low, Low to Lower High, Lower High to Lower LowLower Low Retracements

Retracements

The pullback from a hi

The pullback from a high to a low or from a low to a gh to a low or from a low to a high is called a retracement. high is called a retracement. Retracements areRetracements are what the market uses to find the

what the market uses to find the required momentum to achieve its target required momentum to achieve its target or destination.or destination. Low Low High High Higher Low Higher Low Higher High Higher High High High Low Low Lower High Lower High Lower Low Lower Low

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So it will hit a low that holds, “A”, wave to a high, “B”, retrace to a higher low “C” and extend to its So it will hit a low that holds, “A”, wave to a high, “B”, retrace to a higher low “C” and extend to its destination “D”.

destination “D”.

Similarly, it will hit a high that holds, “A”, wave

Similarly, it will hit a high that holds, “A”, wave to a low, “B”, retrto a low, “B”, retr ace to a lower high “C” ace to a lower high “C” and extend toand extend to its destination “D”.

its destination “D”.

Retracements or Cs are percentages of the AB move or swin

Retracements or Cs are percentages of the AB move or swing. g. What the Fibonacci tool What the Fibonacci tool does is calculatesdoes is calculates the length of the AB wave, then measures the percentage (Fibonacci number) it retraced to, to the length of the AB wave, then measures the percentage (Fibonacci number) it retraced to, to determine a destination (D).

determine a destination (D).

FOR ABCD FIBONACCI PATTERNS…. FOR ABCD FIBONACCI PATTERNS…. Fibs are drawn from A to B

Fibs are drawn from A to B. So A is always 100% and . So A is always 100% and B is always 0%. Examples below…B is always 0%. Examples below… A A B B C C D D A A B B C C D D

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Fibonacci Retracement Levels Fibonacci Retracement Levels

These are the levels that the market pulls back or retraces to, to facilitate a bounce. These are the levels that the market pulls back or retraces to, to facilitate a bounce. The retracement levels are those between 0 and

The retracement levels are those between 0 and 100%. 100%. The most commonly uThe most commonly used retracement levelssed retracement levels are

are 38.2, 50, 61.8, 78.6 and 88.6. 38.2, 50, 61.8, 78.6 and 88.6. The 61.8% is a very The 61.8% is a very key retracement level and is referred to as key retracement level and is referred to as thethe Golden Fib number as the market tends to bounce from there on most retracements.

Golden Fib number as the market tends to bounce from there on most retracements.

Fibonacci Extension Levels Fibonacci Extension Levels

These are the levels that the market targets or extends to when it bounces. These are the levels that the market targets or extends to when it bounces. The extension levels are those below 0%. The

The extension levels are those below 0%. The most commonly used extension levels are -38.2, -50, most commonly used extension levels are -38.2, -50, --61.8,-78.6, -88.6, -100, -127.2,-161.8,-200, -224,-314.

61.8,-78.6, -88.6, -100, -127.2,-161.8,-200, -224,-314. Associating Retracements with Extensions

Associating Retracements with Extensions Retracement

Retracement Level Level Extension Extension LevelLevel

38.2 -38.2,

38.2 -38.2,-61.8-61.8, -100,, -100,-161.8-161.8,,-200-200, -224, -314, -224, -314 50

50 --5050,, -61.8-61.8, -100,, -100, -161.8-161.8 or a little beyond or a little beyond 61.8 61.8 -38.2-38.2,, -61.8-61.8, -78.6, -88.6, -100, -127.2, -78.6, -88.6, -100, -127.2,,-161.8-161.8 78.6 -38.2, 78.6 -38.2, -61.8-61.8,, -78.6-78.6, -88.6, -100, -88.6, -100,, -127.2-127.2,-161.8,-161.8 88.6 88.6 -61.8-61.8, -78.6, -88.6,, -78.6, -88.6, -100-100, -127.2,-161.8, -127.2,-161.8 ** The extensions in bold are the

** The extensions in bold are the ones mainly targeted.ones mainly targeted.

Trading Fibonacci ABCD patterns Trading Fibonacci ABCD patterns

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In a downtrend, we SELL C

In a downtrend, we SELL Cs and Buy Ds. In an uptrend, we s and Buy Ds. In an uptrend, we BUY Cs and SELL Ds. We use BUY Cs and SELL Ds. We use candlestickcandlestick patterns to confirm Cs and Ds.

patterns to confirm Cs and Ds. Example

Example

If this is new to you, please spend some time practicing before attempting to go further. If this is new to you, please spend some time practicing before attempting to go further.

As you can see from the

As you can see from the above, entries and exits may not be above, entries and exits may not be ideal or highly accurate based on the factideal or highly accurate based on the fact that the market has many options for re

that the market has many options for re tracement, and each retracement tracement, and each retracement level has multiple options forlevel has multiple options for targets. This is why it is important to combine the

targets. This is why it is important to combine the above with something that will help to validate entryabove with something that will help to validate entry and exit points for better results.

and exit points for better results.

Understanding Support & Resistance

Support Support

These are significant lows created by the BEARS (or Sellers), that the bears later target to create lower These are significant lows created by the BEARS (or Sellers), that the bears later target to create lower lows and that the BULLS (or Buyers) use to attract buying.

lows and that the BULLS (or Buyers) use to attract buying. Resistance

Resistance

These are significant highs created by the BULLS (or Buyers), that the bulls later target to break to create These are significant highs created by the BULLS (or Buyers), that the bulls later target to break to create higher highs and that the BEARS (or B

higher highs and that the BEARS (or B uyers) use to attract selling.uyers) use to attract selling. The basic principle in trading Support and Resistance, is that, once

The basic principle in trading Support and Resistance, is that, once a support or resistance level isa support or resistance level is holding, we BUY SUPPORT and SELL RESISTANCE.

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When a support level is broken, the

When a support level is broken, the market begins to close below that level, it market begins to close below that level, it becomes RESISTANCE andbecomes RESISTANCE and attracts SELLERS.

attracts SELLERS.

When a resistance level is broken, t

When a resistance level is broken, t he market begins to close above that he market begins to close above that level, it becomes SUPPORT andlevel, it becomes SUPPORT and attracts BUYERS.

attracts BUYERS.

Fractals (the little dots on the candles in

Fractals (the little dots on the candles in the chart examples) are great the chart examples) are great with helping to identify supportwith helping to identify support and resistance.

and resistance. The bigger the timeframe, the stronger the level The bigger the timeframe, the stronger the level of S & R.of S & R. We can identify support and resistance through:

We can identify support and resistance through: 1.

1. FractalsFractals 2.

2. Candle high/lows, candle closes and opensCandle high/lows, candle closes and opens 3.

3. TrendlinesTrendlines 4.

4. FibonacciFibonacci

Example with Fractals and Candle high/lows, closes and opens Example with Fractals and Candle high/lows, closes and opens

Spend some time training your eyes to find these levels. Spend some time training your eyes to find these levels. Trendline Overview

Trendline Overview

The trendlines will also act as support and resistance levels. It

The trendlines will also act as support and resistance levels. It is very important to draw youris very important to draw your trendlines and keep them for awhile on the

trendlines and keep them for awhile on the chart. Usually when the market touches thechart. Usually when the market touches the trendline 3 times, the third hit causes

trendline 3 times, the third hit causes the most buying or selling. This is the Trendline 1-2-3the most buying or selling. This is the Trendline 1-2-3 setup. Always draw new trendlines as the angle of

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Trendlines are drawn along the lows in an uptrend and alon

Trendlines are drawn along the lows in an uptrend and along the highs in a downtrend. g the highs in a downtrend. ConnectConnect the first two lows/highs and extend your tr

the first two lows/highs and extend your tr endline to identify where the market will likely reendline to identify where the market will likely re turnturn and bounce. If the angle of the

and bounce. If the angle of the trend changes you will need to draw trend changes you will need to draw new trendlines.new trendlines. Trendline Example

Trendline Example

Trendline Example – Buying Support Trendline Example – Buying Support

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Trendline Example Trendline Example

Spend some time to practice

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50% Breach Level Entries

Each Time a Swing (high/low) is created, the

Each Time a Swing (high/low) is created, the 50% level, called the pivot level acts 50% level, called the pivot level acts as support when thereas support when there is a close above it, and as r

is a close above it, and as resistance when there is a close esistance when there is a close below it.below it. The only levels needed on this fib are the

The only levels needed on this fib are the 100%, 50% and 0%.100%, 50% and 0%. Usage

Usage

If the market is tre

If the market is tre nding upwards, and give signals (candle patterns) to sell, we fib the nding upwards, and give signals (candle patterns) to sell, we fib the high to thehigh to the nearest low and market the 50%

nearest low and market the 50% level as the support level. If bullish candle patterns develop off level as the support level. If bullish candle patterns develop off thisthis level the trend is like to co

level the trend is like to continue UPWARDS. If however there is a ntinue UPWARDS. If however there is a break, below this level, it will becomebreak, below this level, it will become resistance and give opportunities to SELL.

resistance and give opportunities to SELL. Trend Reversal Example–GBP/US

Trend Reversal Example–GBP/USD – Feb 8, D – Feb 8, 20102010

Once our resistance holds, we search

Once our resistance holds, we search for the next 50% breach for the next 50% breach level. This is done by adjusting to 0% tolevel. This is done by adjusting to 0% to the low just below the current.

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We continue to adjust the previous low

We continue to adjust the previous low and enter on 50% breaches and enter on 50% breaches until we have reached ouruntil we have reached our destination.

destination.

Trend Reversal Example–EUR/USD – Feb 11, 2010 Trend Reversal Example–EUR/USD – Feb 11, 2010 First breach gives us our first entry

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EUR/USD Example continued

EUR/USD Example continued - Second breach gives us our second entry - Second breach gives us our second entry

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EUR/USD Example continued - Fourth breach gives us our fourth entry - Fourth breach gives us our fourth entry

EUR/USD Example continued - Fifth breach gives us - Fifth breach gives us our fifth entryour fifth entry

WOW!!! Look at that! We are able

WOW!!! Look at that! We are able to take 5 beautiful entries on this to take 5 beautiful entries on this EUR/USD trade on Feb 11, EUR/USD trade on Feb 11, 2010. All2010. All on the 50% level. Did the tr

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with ABCD fibs. If all these entries wer

with ABCD fibs. If all these entries wer e traded and held, the trade e traded and held, the trade yielded 970+pips in 24 hours on ayielded 970+pips in 24 hours on a 15M chart.

15M chart.

Go over these examples and burn them into

Go over these examples and burn them into your mind.your mind. Now that we have the basics of

Now that we have the basics of the 50% breach. We will examine the 50% breach. We will examine time. This method is most profitabletime. This method is most profitable when traded between 3:00am EST and 12

when traded between 3:00am EST and 12 :00pm EST. So we start our trading :00pm EST. So we start our trading day at or within that time.day at or within that time. By now you must be asking, “Where do I take profits?”

By now you must be asking, “Where do I take profits?” This is where the Bobokus Fibs come inThis is where the Bobokus Fibs come in

Bobokus Fib levels

Previously we looked at the most basic way of

Previously we looked at the most basic way of using Fibonacci to derive retracement and eusing Fibonacci to derive retracement and e xtensionxtension levels. The Bobokus Fibs differ in that:

levels. The Bobokus Fibs differ in that: 1.

1. It uses a different set of levelsIt uses a different set of levels 2.

2. Fibs are drawn from high to low Fibs are drawn from high to low at ALL times whether we at ALL times whether we are in an up or downtrendare in an up or downtrend 3.

3. It is more precise for identifying targets It is more precise for identifying targets and entriesand entries 4.

4. It is more precise for It is more precise for identifying the major support and resistance of a period (hour, 4identifying the major support and resistance of a period (hour, 4 hrs, day,hrs, day, week etc.)

week etc.)

Understanding the Bobokus Fib Levels Understanding the Bobokus Fib Levels

The Resistance & Support Levels The Resistance & Support Levels

The 80.9% is the resistance of the

The 80.9% is the resistance of the swing that you fib. The principle still remains that we should SELLswing that you fib. The principle still remains that we should SELL RESISTANCE.

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The 19.1% is the support of the swing

The 19.1% is the support of the swing that you fib. The principle still remains that we should BUYthat you fib. The principle still remains that we should BUY SUPPORT.

SUPPORT. Retracements to this level attracts BUYING Retracements to this level attracts BUYING usually to the 80.9% Ousually to the 80.9% OR 127.2%R 127.2% Conversely, when we are trading above the

Conversely, when we are trading above the 80.9% it becomes support and, remember, 80.9% it becomes support and, remember, we BUYwe BUY SUPPORT.

SUPPORT.

If we are trading below the 19.1%, it becomes resistance and, we SELL RESISTANCE. If we are trading below the 19.1%, it becomes resistance and, we SELL RESISTANCE.

Long & Short Levels Long & Short Levels

The 38.2% is the SHORT level of the swing. Meaning, below this level is the area to go SHORT or SELL. The 38.2% is the SHORT level of the swing. Meaning, below this level is the area to go SHORT or SELL. The 68.1% is the LONG level of the

The 68.1% is the LONG level of the swing. Meaning, above this level is the area to swing. Meaning, above this level is the area to go LONG or BUY.go LONG or BUY. Because of the above fact of

Because of the above fact of the long and short levels, whenever the the long and short levels, whenever the market is falling towards the 38.2%market is falling towards the 38.2% it acts as SUPPORT, and whenever it is

it acts as SUPPORT, and whenever it is climbing towards the 61.8% it acts as reclimbing towards the 61.8% it acts as re sistance.sistance.

Reverse Trades Reverse Trades

Whenever targets (bull or bear) are achieved, opportunities are presented for entering a reverse trade Whenever targets (bull or bear) are achieved, opportunities are presented for entering a reverse trade (reversing your position). You will see that 90% of the times,

(reversing your position). You will see that 90% of the times, there is a reversal or there is a reversal or pullback after targetspullback after targets are hit.

are hit.

Trend Continuation Trend Continuation

Bearish Trend Continuation trades usually occur at the 80.9% and 61.8%. Bullish Trend Continuation Bearish Trend Continuation trades usually occur at the 80.9% and 61.8%. Bullish Trend Continuation trades usually occur at the 19.1% and 38

trades usually occur at the 19.1% and 38 .2%..2%.

Usage of the Bobokus Fibs

We will use the Bobokus Fibs for: We will use the Bobokus Fibs for:

1.

1. Weekly Targets, Support & ResistanceWeekly Targets, Support & Resistance 2.

2. Daily Targets, Support & ResistanceDaily Targets, Support & Resistance 3.

3. Intraday Targets, Support & ResistanceIntraday Targets, Support & Resistance

Finding Weekly Targets, Support & Resistance

At the close of a g

At the close of a g iven week, that is Friday evening, Fib iven week, that is Friday evening, Fib from the high of that week from the high of that week to the low of thatto the low of that week.

week. This will projected the targeted bull and bear levels for the next week, as well as show the areasThis will projected the targeted bull and bear levels for the next week, as well as show the areas of support and resistance that should be watched.

of support and resistance that should be watched. Whenever targets are not achieved in a given week,Whenever targets are not achieved in a given week, they are usually achieved early the following week

they are usually achieved early the following week (Sun-Tues), followed by a massive reversal.(Sun-Tues), followed by a massive reversal.

Finding Daily Targets, Support & Resistance

At the close of a g

At the close of a g iven day,(12:00amEST to 11:59pmEST), Fib from the high of that day iven day,(12:00amEST to 11:59pmEST), Fib from the high of that day to the low of thatto the low of that day.

day. This will project the targeted bull and bear levels for the next day, as well as show the areas ofThis will project the targeted bull and bear levels for the next day, as well as show the areas of support and resistance that should be watched.

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Weekly Fib Example Weekly Fib Example

Daily Fib Example Daily Fib Example

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Targets Targets

The projected bull and bear targets on

The projected bull and bear targets on a swing should be interpreted as follows:a swing should be interpreted as follows: Should the market go BULLISH, t

Should the market go BULLISH, these will be its targets for hese will be its targets for the specified period.the specified period. Should the market go BEARISH, these

Should the market go BEARISH, these will be its targets for the will be its targets for the specified period.specified period.

Price Rejection Price Rejection

This occurs when the 100% or

This occurs when the 100% or 0% level is broken and the market 0% level is broken and the market fails to reach the bull or bear fails to reach the bull or bear targets.targets. The result is a massive reversal in the

The result is a massive reversal in the opposite direction towards the Resistance (if the market opposite direction towards the Resistance (if the market waswas selling before) or Support (if the market was

selling before) or Support (if the market was buying before) and then to the targets buying before) and then to the targets on the opposite sideon the opposite side of the fibs.

of the fibs.

Persons who trade bigger timeframes can fib the high and

Persons who trade bigger timeframes can fib the high and low of the previous month to get anlow of the previous month to get an outlook on the next month.

outlook on the next month.

Finding Intraday Targets, Support & Resistance

This section will require your fullest attention as it is a

This section will require your fullest attention as it is a little different from the previous. Intraday fibs,little different from the previous. Intraday fibs, means that as the day progresses,

means that as the day progresses, you will be adjusting your fibs to the new high or you will be adjusting your fibs to the new high or low of the day, inlow of the day, in order to find new targets,

order to find new targets, support and resistance.support and resistance. STEPS

STEPS

So at 3:00amEST: So at 3:00amEST:

1.

1. We search for the high and low We search for the high and low created between 12:00amEST and 3:00amEST.created between 12:00amEST and 3:00amEST. 2.

2. We fib from the high to the We fib from the high to the low to establish targets, support and resistance.low to establish targets, support and resistance. 3.

3. We draw our 50% breach We draw our 50% breach fib from: low to nearest high OR high fib from: low to nearest high OR high to nearest low.to nearest low. 4.

4. We wait for a breach to occur on the 50% breach fib, or for a continuation of trend at that level.We wait for a breach to occur on the 50% breach fib, or for a continuation of trend at that level. 5.

5. We enter on breaches or bounces on the breach level.We enter on breaches or bounces on the breach level. 6.

6. We take profit at the target level, or if holding, adjust our 50% breach fib to the nearest high orWe take profit at the target level, or if holding, adjust our 50% breach fib to the nearest high or low and await another entry. (Please note that e

low and await another entry. (Please note that e ntries may be derived from the ntries may be derived from the long and shortlong and short levels as well)

levels as well) 7.

7. Adjust the Bobokus fib to the new high Adjust the Bobokus fib to the new high or low created, to view or low created, to view new targets.new targets. 8.

8. Repeat steps 3-6Repeat steps 3-6

Taking Profits Taking Profits

The preferred take profit level, on

The preferred take profit level, on daily and weekly fibs, are the first targedaily and weekly fibs, are the first targe ts (-34% & 134%), as most ofts (-34% & 134%), as most of the times it is the target

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Step-by-Step Example Step-by-Step Example So at 3:00amEST: So at 3:00amEST:

1.

1. We search for the We search for the high and low created between 12:00amEST and 3:00amEST.high and low created between 12:00amEST and 3:00amEST. Feb 10, 2010 – GBP/USD

Feb 10, 2010 – GBP/USD

2.

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3.

3. We draw our 50% breach fib from low to nearest high or high to nearest low.We draw our 50% breach fib from low to nearest high or high to nearest low. In this case, the nearest

In this case, the nearest high (to the low of the day) high (to the low of the day) just happens to be the same as tjust happens to be the same as the high ofhe high of the day.

the day.

4.

4. We wait for a breach to occur on the 50% breach fib, or for a continuation of trend at that level.We wait for a breach to occur on the 50% breach fib, or for a continuation of trend at that level. 5.

5. We enter on breaches or bounces on the breach level. In this case there is a reversal so we enterWe enter on breaches or bounces on the breach level. In this case there is a reversal so we enter on the pullback.

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6.

6. We take profit at the target level, or if holding, adjust our 50% breach fib to the nearest high orWe take profit at the target level, or if holding, adjust our 50% breach fib to the nearest high or low and await an entry. (Please note that

low and await an entry. (Please note that entries may be derived from the entries may be derived from the long and short levelslong and short levels as well)

as well) 7.

7. Adjust the Bobokus fib to the new high or low created, to view new targets.Adjust the Bobokus fib to the new high or low created, to view new targets.

Repeat steps 3-7. Repeat steps 3-7. Point to note Point to note

When holding long positions, you will need to fib the high to low of

When holding long positions, you will need to fib the high to low of the last major move before thethe last major move before the reversal you are trading to find support (19.1%) or

reversal you are trading to find support (19.1%) or resistance (80.9%), as it is common for the resistance (80.9%), as it is common for the market tomarket to return to these levels upon reversal.

return to these levels upon reversal. Example

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In Summary

This method is very consistent across a number of pairs. Demo tr

This method is very consistent across a number of pairs. Demo tr ade it for awhile before beginning toade it for awhile before beginning to trade live. Establish reasonable money management rules and stick to them. I

trade live. Establish reasonable money management rules and stick to them. I personally believe thatpersonally believe that risking 1-2% per trade is conservative and gives

risking 1-2% per trade is conservative and gives you reasonable room to correct mistakes and ryou reasonable room to correct mistakes and r ecoverecover from losing trades.

from losing trades.

Finally, improvise but keep it simple. Finally, improvise but keep it simple. Blessings!