Monday, May 16, 2016

Fibonacci Pivot Strategy

Fibonacci Pivot Strategy Rules:
The majority of traders are used to the Fibonacci retracement tool, however, not the same can be said when it comes to the Fibonacci extension tool which are far less popular among traders however it has far more accuracy the than Fibonacci retracement levels have. The Fibonacci extension tool will help you to identify possible entry points as well as taking profits points, will project future price movement and if you’re trading with Elliott Wave theory the extension tool is a must.
Our strategy is based around the Fibonacci extension tool and some pivot points. Since the market is fractal in nature this strategy is suited for all time frames and can be traded from the 5 minute chart all the way to the daily and weekly chart, however, it’s performing better on the daily chart.

The Fibonacci extension tool takes three reference points in consideration. If we’re bullish on the market, you take in consideration the last low to the most recent high and back to the most recent low and it’s going to give you a top side extension. If we’re bearish on the market, we’re going to take our most recent high, last low and then back to the most recent high and we’re going to get our downside extension.
For whatever reason the market it seems that it likes to come back to the 100% Fibonacci extension level, which is equal legs from the high/lows. Speaking from my own experience there is a higher probability that the 100% Fibonacci extension level will hold than the 50% Fibonacci retracement level.
The best thing about trading Fibonacci extension level is that it’s having a higher predictive level of where the market is going. However, we’re not going to use this tool in isolation but in combination or in confluence with the pivot points. When I’m referring to the pivot points I’m not speaking about the mathematical ones, but a pivot point is formed when we have a strong day in one direction of the market and the following day the market goes in the opposite direction and a new trend has started.
Daily Fibonacci Pivot Strategy
Bottom Pivot

Buy rules:

  • Wait for the 100% Fib extension to be reached;
  • For better accuracy wait for the daily close, but it’s not mandatory;
  • Only enter in confluence with a Pivot Point; As long as we stay above the pivot point the signal is still valid even though we may break a little bit below the 100% Fib extension
  • Stop Loss = 10 pips below the Pivot Point;
  • Take profit = 50% retracement;
Fibonacci Pivot Strategy Rules
Trends

Sell Rules:

  • Wait for the 100% Fib extension to be reached;
  • For better accuracy wait for the daily close, but it’s not mandatory;
  • Only enter in confluence with a Pivot Point; As long as we stay below the pivot point the signal is still valid even though we may break a little bit above the 100% Fib extension
  • Stop Loss = 10 pips above the Pivot Point;
  • Take profit = 50% retracement

In the above example, we notice a nice buying opportunity and even though we may slightly break the equal legs or the 100% Fib extension we kept on staying above the pivot point and ultimately it went to our target. In the second example, we can see that it’s a continuation from above example, but this time around by drawing the Fibonacci extension levels from the subsequent waves a selling opportunity arose right after we have taken our profits from the long position.

Happy Trading...