I’ve never understood how it is done. Could anybody help me? This is one of those fantastic indicators that seems to be used or that has been used successfully by most experienced traders.
The main reason I want to do this is because I currently have a strategy that has been successful in 2 trades, with another 2 currently open that look promising, and has gained me (approximately) a hearty 60 pip profit in two days.
My current method of entry is just by aligning my indicators, but I can lose the main momentum of the trade when I only notice 10 minutes into the alignment of the indicators. Could you show me how to extrapolate entries? And similarly, I am exiting at around 30 pips a trade, yet occasionally the momentum of the trade is much stronger (one of the trades continued down another 75 :mad:). I know that the school of Pipsology says “don’t be greedy”, but I can’t help to want more than a quarter of that slither of pie from that past trade.
To address that “wanting to have more pie”, one suggestion could be to close half your position at a certain level. For example, the trade is going your way and your up 30 pips, you can close half, then let the other half of your trade run and move your stop loss to your entry point to make it a “risk free trade”. Just be careful - you may be able to get more pips out of this, but at the same time, if price action retraces, you could be missing out on some profits.
As for Fibonacci’s, what makes it so effective (I believe) is that many traders are looking at the same Fibonacci levels. Thus, it sort of becomes self fulfilling - lots of traders looking at the same figures, lots of orders there, etc… you get the point. I think that the Fibonacci tool is best used on longer time frames - you can point out swing highs and lows more easily.
Ill show you an example of a trade on the EURJPY pair that I took earlier today.
I looked at the daily chart, and saw the pair was approaching the .618 Fibonacci retracement level.
I bought on the bounce at 131.59 when I had the chance. Eventually, I closed at 132.15 for a small profit. Not bad, 56 pips!
The retracement didnt fully pan out, but there was some support at that level. I think with this in mind, you should take note when Fibonacci retracement levels line up with key support / resistance levels, or with psychologically significant numbers for an entry point.
Fibo’s can be great guides to “rough” directional movement, the key issue is where is your fibo set and on what time frame.
With so many variations of time frame, major length, medium or near term lengths you can end up so many fibo levels all effecting price that it becomes nearly impossible to determin during day-near term trading.
An example, lets take eur/usd the worlds favorite pair, if you take TF daily the high to low Aug 08 to Dec 08 is an obvious major fibo set, then the climb out of dec to its 1.47 high then back down again, now thats just three fibo sets, confusing but all have been used as R & S lines in recent trading.
Then go down a TF and a whole new set, plus add “do you fibo from the high to low or use line graph and the open & close?” plus many more ways we can think of placing a fibo, humans (traders) we do it.
Because of this fibo’s are normally an “area weapon” and can and do have many over runs/ under runs. They are very useful but for me not a precise entry/exit.
