Several Ways of Employing Fibonacci Levels

Each trader applying technical analysis has many postulates he relies on in trading. Quite often it turns out that traders do not go deep into the matter, guided by their market experience only. However, there are effective theories applied to the markets which lack substantial ground. They can be proved by statistics only. This is the kind of theories Fibonacci number theory is attributed to.


Originally, this trading instrument was used on a bull market. Traders had to plot Fibonacci retracement levels manually. The Fibonacci conception was gaining popularity. Permanent practice has revealed its many advantages.


Fibonacci levels describe the interaction between trend and countertrend markets — 38%, 50% and 62% retracement from the reverse point.  As a rule, percent ratios are applied after the trend is determined. Find out the points of percent levels crossing those of price by stretching a grid over the most apparent up or down waves.


 Great trading opportunities are ensured by converging patterns and retracement levels. It should be remembered that retracements are ineffective in vacuum. Keep an eye on highs, lows and moving averages to make sure a certain level is important.


The discrepancy between a retracement and a basic pattern does not result but in a market noise, not to mention an expected profit. The patterns which contain incongruous analysis aspects are not recommended to use. Such incongruity leads to numerous abrupt reversals on price charts. On the contrary, the correlation between Fibonacci levels and patterns ensures highly predictable reversals at narrow price levels.


The two examples below are to be of help to you in working with Fibonacci. Using these methods in trading is sure to make your trading profitable and convenient.



The first rise/ first fall marks 100% retracement of a trend within a certain period of time. It can be regarded as a reversal warning. 100% retracement alters the major price movement which then terminates the trend it corrects. If a previous retracement level of 38% is broken through, then the old trend can reestablish itself. Most often traders tend to use this level to open positions against the old trend, which minimizes the risk.


Overnight grids

Find an active market instrument and start stretching a grid either from a low or high registered within the last hours of the session. Stretch a grid to the opposite direction to a low or high of the first hour of the following morning.  This determines certain price waves a trader can use in order to find intra-day gaps, break-outs and break-downs.  In addition, this type of grids is applied to morning gaps. Stretching across a key retracement, a gap will provide an opportunity of entry to the market with low risks at a pullback.


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Posted By eloaizabel : 22 September, 2020
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Hidden divergence vs regular divergence – what’s the difference? Either type of divergence can provide a powerful edge with the right trading strategy. In this article, I’m going to show you the difference between hidden divergence and regular divergence.     I’m also going to show you how these two types of divergence should be used, and I’ll give you some tips on trading hidden divergence. Keep reading to learn how to increase your odds of taking winning trend continuation trades.   Hidden Divergence vs Regular Divergence Hidden divergence is a sign of trend continuation, while regular divergence is a sign of trend reversal. The idea is that regular divergence shows momentum leaving the trend, which could be an early sign of a reversal. Hidden divergence shows momentum coming into the current trend, which makes a continuation more likely.   The charts below show examples of both hidden divergence and regular divergence. I’ve marked the bullish divergence in green and the bearish divergence in red.     In the chart above, you can see some examples of regular MACD divergence. Regular divergence is measured off of the lows of price and the indicator during a downtrend, and off of the highs of price and the indicator during an uptrend.   Starting from the left, price made lower lows while the MACD line made a double bottom. Next, price made a double top while the histogram made lower highs. Finally, price made three consecutive higher highs while the histogram made three consecutive lower highs.     In the chart above, you can see some examples of hidden MACD divergence. Hidden divergence is measured off of the lows of price and the indicator during an uptrend, and off of the highs of price and the indicator during a downtrend (the opposite of regular divergence).   Starting from the left, price made higher lows while the histogram made lower lows. 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the pattern.  I have not done any back testing on it but I don’t see how that would be an edge especially if you believe that most breakouts will fail.  Maybe they won’t just fail, but we’ve seen quick pops above/below #2 that could trigger you into the trade which all traders have probably experienced.   Another way to enter is to monitor price as it approaches swing #2.  See if you can find some type of consolidation on your trading time frame or even a lower time frame.  This will position you before the breakout and if the breakout succeeds with momentum, you will find yourself in quick profits.   Other traders may want to enter near location #3 as it will give you a larger profit profile and you can be in profit before the breakout which means any failure of the breakout, won’t cost you as much.   Stop Loss Location   You can use somewhere below or above the #3 or use an ATR stop that measures the volatility of the market.  Just ensure you are not placing your stop loss too close to market action.  The main drawback of the 1 2 3 pattern is that stops can be fairly large depending on the length of the 2-3 leg.   Traders may, once they recognize the pattern on a higher time frame, drop to a lower time frame and look for the same pattern on a smaller scale.   You will get an earlier entry and a smaller risk profile as well.  You should consider using the same stop location as you would on the higher time frame chart.  With an earlier entry off the lower time frame 1 2 3 reversal, you will have an opportunity for a slightly larger position size.   Take Profit Targets   You can use the same pattern to exit the trade as well.  Consider a market in an uptrend and you’ve entered early on in the move.   1 2 3 Trade Exit   Once price takes out #1, you exit the trade regardless of the profits you have accumulated.  Traders may notice this is a violation of higher highs and higher lows you need for an uptrend.  That is correct.  You exit when you see price is no longer respecting the stair stepping trend direction pattern.   Another profit taking approach is to use Fibonacci extensions.   1 2 3 Profit Targets – Fibs   Managing Your Trade   There are many different ways to manage a trade from multiples of risk to price action patterns.  I like to keep things simple in regards to managing my trades with any trading strategy.   Being a risk manager is my first job.   Once I am in profit at 1R, I will bank a percentage of my profits.  The actual percentage will depend on the strength of price but anywhere from 25-35%. Depending on the size of the trade, I may or may not move my stop to break-even.  It depends on how far price has traveled.  I don’t want a protective stop too close that it is hit by fluctuations in the market that don’t challenge the trade. You can take further action at 2R and 3R or use Fib targets to scale out or exit fully at the 2.0 which is the length of 2-3 of the 1 2 3 reversal pattern Hope this helps and please share this trading post!

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