Fibonacci and Supply and Demand

Beginner Questions
1

Please comment on this strategy that I have been backtesting and hope to start implementing on the charts.

It is a focus on supply and demand entries and then I use a Fibonacci retracement for entries that don’t respect supply and demand.

It is very simple, I look for potential supply and demand and if that does not occur I take a Fibonacci trade where I look for an entry at every impulse that breaks structure and retraces to a fib level.

My strategy works with two parts :
Context and Execution

Context:
The process starts with determining the context of the market and by this I mean finding the daily bias and deciding what phase the market is in.

I will only trade once there has been a
break of structure because this tells me the market wants to make a move and not just accumulate.

I take the impulsive leg as my bias and
I mark up supply and demand zones hoping to catch a continuation of the impulsive move.

Execution:
For minor breaks of structure I can expect a retracement back to the supply or demand zone and I will enter once there is rejection and break of candle.

If there was a major break of structure then
I will draw a fibonacci retracement on the impulsive leg.

There must be at least a .382 retracement for me to take the trade and I target the level that aligns with other points of interest and again I wait for rejection and then a break of candle.

I use .382 and .5 and .618 and .786 and anything beyond that will be just a regular supply or demand setup.

I target 1:3 RR on all trades and take partials and move to break even at 1:1 RR.

3 Likes
2

Entry criteria doesn’t really matter. Your R:R will dictate any profitability. I know a 1:3 is not sustainable.

1 Like
3

Yes - I may not be a very experienced trader but I am a statistician and maths teacher and am certain of that part. :slight_smile:

People trading for a living (either employed or independent) have an R:R of 1:1 or less and a win-rate above 50%. People in forums and on Youtube and writing PDFs and promoting stuff usually want and advise an R:R of 1:2 (or even 1:3!!! :open_mouth: ) but are not making a living.

Nor are the people taking their advice.

What you say is completely true, but you will probably not convince anyone.

The general consensus is that the entry method is a pretty important part of the trading system. This is wrong, of course, but people will not really listen if you try to explain it. They wish to continue believing that if they get the entry time and position and direction right, all the rest will somehow fall into place for them.

It will not.

The “all the rest” is the parts that actually do matter, the parts that really determine the outcomes.

For myself, I have never seen any evidence at all beyond carefully selected anecdotal examples that Fibonacci retracements have any possible value to traders, but it is also not what people want to hear. Sorry. :blush:

For myself, I do not believe in these concepts at all, regarding forex.

You are simply betting against a counterparty on the price levels of the counterparty’s own product, which are determined by the counterparty.

Even in the so called liquidity pools, and even in the interbank market, supply and demand are not meaningful concepts, as there is to all traders’ intents and purposes an infinite supply of all fiat currencies.

Again it is also not what people want to hear. Sorry. :blush:

2 Likes
4

O que quer isso dizer 1/3 ou 1/1?

6

Your strategy seems to have a clear structure with a focus on identifying supply and demand zones, combined with Fibonacci retracements for potential entries. Let me break down the key components:

Context:
Analyzing the daily bias and determining the market phase is a solid foundation. Waiting for a break of structure before initiating trades is a prudent approach, indicating a commitment to capturing directional moves rather than mere accumulation.

Identifying the impulsive leg as your bias and marking up supply and demand zones based on it suggests a systematic way of assessing potential opportunities.

Execution:
For minor breaks of structure, the idea of expecting a retracement to supply or demand zones and entering upon rejection and a break of the candle demonstrates a tactical approach.

For major breaks of structure, using Fibonacci retracement on the impulsive leg adds a layer of precision. The requirement of at least a .382 retracement before considering a trade aligns with a cautious strategy. Targeting levels that align with other points of interest reinforces the importance of confluence.

The use of various Fibonacci levels (.382, .5, .618, .786) allows for flexibility in adjusting to different market conditions. The decision to treat retracements beyond .786 as regular supply or demand setups provides clarity on trade selection.

Maintaining a consistent 1:3 risk-reward ratio, taking partial profits, and moving to break even at 1:1 risk-reward are sound risk management practices that help protect profits and minimize losses.

Your strategy appears well-structured, combining market context analysis with a systematic execution plan. By integrating supply and demand principles with Fibonacci retracements, you’ve created a comprehensive approach. Keep in mind that consistent application and adaptability to changing market conditions are crucial for long-term success so keep it up and continue observing it

7

Thank you for your reply. So in your opinion what is the best trading style to implement?

8

I like your style. I trade supply and demand within the framework of fibonacci. Fibonacci shouldn’t be used in isolation and like everything else on the chart, there needs to be context.

If it works for you more often than not, keep doing it. Don’t let others sway you.
Their mileage may be different because we are all different as traders regardless of the strategy.

I may be biased based on my own results with Fibs and Supply/Demand, but I think you are going in the right direction. With some refinement, you’ll have something very special.