Fibonacci Trading Strategy

In this article, I will discuss the Fibonacci Trading Strategy with Real-Time Examples. Please
read our previous article discussing the Volume Spike Trading Strategy with Real-Time
Examples. The following Key pointers are going to be covered in this article.

 What Fibonacci Retracement Levels Should I Use?

 Should the price touch the retracement levels?
 What confluence factor to check for more reliable entry?
 How to take entry (aggressive /conservative/safe entry)?
 Where to put the stop loss-based Fibonacci retracement ratio?
 Where to take profit based on Fibonacci?
 Trailing stop loss and profit booking method based on the Fibonacci extension tool

You will find some answers to the following common questions related to Fibonacci trading.

 Does Fibonacci work in trading?

 How successful is Fibonacci trading?
 What is 61.8 Fibonacci?
 What is the best time frame for Fibonacci?

Introduction to Fibonacci vs any other indicator

Moving average trend following system vs Fibonacci trading system. The initial trader bases
his choices on a trend-following strategy. He is employing two 9- and 21-period simple
moving averages. When the 9 MA crosses the 21 MA, a buy signal is generated. When 9 MA
crosses back below 21 MA, it is time to leave the trade. Here is an example of a moving
average trend following strategy.
Due to the rapid price movement and the late MA cross, the entry point was relatively late.
The exit signal arrived far too late. And if the price gives deep retracement, then you will be
out of trade irrespective of the price move in your direction. In this example, the deep
retracement happens.

Other traders are using the Fibonacci method. He decides to trade swing, plots the
Fibonacci retracement levels, and watches for an entrance signal at the level of
retracement. Enter the deal as soon as the signal appears. To determine when to end the
trade, he also draws the Fibonacci extension level.

When the moving average trend follows the system, the initial trader decides to enter the
trade. To make a profit, it was far too late. Examine the second trader (Fibonacci). He made
his entry and exit decisions well before the first trader did. He increased his profit on the
same chart and closed it out while the initial trader was still holding out for the trend to
continue.

What Are the Different Fibonacci Trading Tools and How to Apply Them?

The Fibonacci tools are used to identify entries, support & resistance, targets, and exits.
These two are the most widely used:

 Fibonacci retracement
 Fibonacci extension

What is a Fibonacci Retracement, and how do you use it?

The underlying principle of the Fibonacci retracement trading method. According to the
theory, the price will retrace after starting a new trend direction before continuing in the
trend’s direction. So, to determine the next potential support and resistance levels, we use
the Fibonacci tool.

The retracement level predicts the highest level at which retracement is possible. These
retracement levels offer traders a great chance to open new trades in the trend’s direction.

 The Fibonacci retracement levels are 23.6%, 38.2%, 50%,61.8%, 78.6%, and 100%.

Next possible support levels are marked if the stock moves up

Basic Fibonacci Trading Strategy

How to draw Fibonacci Retracement?

EXAMPLE FIBONACCI RETRACEMENT IN A DOWNTREND

You must locate the most recent important Swing Highs and Swing Lows to determine
these Fibonacci retracement levels. Find the recent swing HIGH (starting point) and recent
swing LOW (ending point), then join the 2 lines. Drag the pointer to the most recent Swing
LOW to swing HIGH and find all retracement level

 0.618 is the golden retracement level

 .0.5 to .618 is the imp retracement level in the trend
 Use the Fibonacci tool along with the confluence factor for entry
The above chart price retraces the 61.8% level. THE BELOW CHART is the continuation of the
above chart. but retrace 50%

Again, the below chart is the continuation of the above chart and retraces 78.6%

What is the Fibonacci extension, and how do you use it? How to draw Fibonacci
Extensions?

Fibonacci Expansion is based on three points. Here are the steps for a downtrend
Step 1 – Identify the direction of the market: downtrend. To draw it, we must identify the
impulse swing (A and B points) and retracement end (point C).

Step 2 – Attach the Fibonacci extension tool on the swing high and drag it to the right, all
the way to the swing low.

Step 3 – Now, drag back to the retracement end (point C).

Why use Fibonacci Extensions in Trading?

Opening a trade is significantly less significant than closing it. Extension tool for exit price
goal. Traders can use Fibonacci extensions to set profit targets or predict how far a market
may rise when a retracement is complete. Extension levels are yet another potential
location for a price reversal.

Fibonacci extension levels are quite helpful in deciphering market reversals and potential
roadblocks. Simply put, Fibonacci extension levels are the critical points from which the
price of an instrument may change.

The Fibonacci Retracement Tool makes it easy to lay out extensions by automatically
identifying several extension levels where prices can turn around. Common Fibonacci
extension levels are 61.8%, 100%, 161.8%, 200%, and 261.8%.

To fully exit a trade or book a partial profit, traders must adhere to certain guidelines. They
are aware that there is a good likelihood the movement will come to an end or pause for a
while.

Divide your position into three parts, which is the basic profit booking strategy traders use.
At 100% extension, the first part is immediately closed. You close the second part at the
161.8% extension if the price continues to move in the direction of the trend. You let the
third component increase before manually closing it using either a technical trigger or a
different extension level.

Difference Between Fibonacci Retracement and Fibonacci Extension

Fibonacci Retracement Fibonacci Extension

Indicates the depth of retracement after Indicates where the price may go following a
impulse move. retracement in the trend
 Measures Pullbacks Within a Trend. price Measures the trend impulses waves in the
correction or time correction direction of the trend
Provide effective stop-loss levels and Gives good take-profit points in trend trading
entry orders for a trend trading strategy. and reversal points for trend reversal
techniques.
With other confluences, it can be It can be applied to a strategy for taking
effectively used as a profitable approach. profits and may also indicate promising
points for trend reversals.
Fibonacci Numbers are within the initial Fibonacci Numbers are beyond the 100%
trend. (38.2%, 61.8%, 50%, etc.) Fibonacci level. (1.618%, 123.60%, etc.)

Fibonacci Trading Strategy

The Fibonacci technique works best when the market is trending, which is the first thing
you should know about. When the market moves upward, the plan is to buy a retracement
at a Fibonacci support level. Additionally, when the market is trending downward, it is
advisable to sell a retracement at a Fibonacci resistance level. Since Fibonacci retracement
levels try to foretell where the price might be, they are regarded as a technical indicator.

 What Fibonacci retracement levels should I use?

 Should the price touch the retracement levels?
 What confluence factor to check for more reliable entry?
 How to take entry (aggressive /conservative/safe entry)?
 Where to put stop loss based on entry?
 Where to take entry?

What Fibonacci Retracement Levels Should I Use?

Because there are so many Fibonacci retracement levels, it is initially highly confusing.
Fibonacci Retracements are not entry signals; they are target areas where an entry signal
may occur. Trading simply because the price has reached a Fibonacci retracement ratio level
is not a wise strategy. Another confluence is required before trades can be taken.

 If u use Fibonacci Retracements level with other concepts confirming like trend line,
pivot point, or any dynamic support or resistance

Should the price touch the retracement levels?

This is always a problem for beginners. They think the retracement to any fibo level is only
valid when the price touches this level. They are wrong. Fibonacci retracements are a great
tool, but there is no 100% accuracy. Sometimes, the price closes near the retracement level,
and it can still be a valid move.

How do you take entry?

Basically, 3 types of entry can be taken after a Fibonacci retracement.

 Aggressive entry
 Conservative entry
 Safe entry

Which entry is the best for you? It is your decision. It depends on risk, reward, and
probability.

Aggressive entry after deep retracement

This is the riskiest entry but a small loss and high reward setup. You are willing to take a
small risk in turn for a possible bigger return. When the price near/reaches the 61.8%
retracement, you go long at this level or a little above it.

1. Identify the trend and level of Fibonacci retracement level.

2. Look for the confluence factor
3. Wait for a reversal candlestick pattern for entry
4. Draw extension lines for the possible target level
5. Put stop loss beyond recent high in downtrend also beyond Fibonacci retracement
level
Conservative Entry

The conservative entry is when you wait and watch how the price reacts toward the
retracement levels. If you see that 61.8% is probably the retracement which a bounce back
may occur from, you are ready to take a long position. But unlike the aggressive entry case,
you wait for another confirmation. Break of minor swing low in the bearish entry.
confirmation signals are not always 100% correct, but in that case, you have a lower chance
of failure. The ratio between risk and possible profit is good. In this example, the trader
decided the signal would be close below support.

1. Identify the trend and level of Fibonacci retracement level.

2. Look for the confluence factor
3. Wait for the break of minor support for entry for a bearish trade
 4. Draw extension lines for the possible target level
5. Put stop loss beyond recent high in downtrend also beyond Fibonacci retracement
level

One more example of both entry

Safe Entry

This way of trading is the safest one compared to the other two entry methods, but your
possible profit is the smallest. The main idea is to buy a breakout after a price
contrxxxaction.

For full details of the breakout trading strategy, click here

In theory, it should look like in the picture below:

1. Identify the trend and level of Fibonacci retracement level.

2. Look for price contraction before the breakout
3. Wait for the break of support for entry for a bearish trade
4. Draw extension lines for the possible target level
5. Put stop loss beyond contraction high in a downtrend
Fibonacci Trading Strategy Summary:
The Fibonacci trading strategy involves using Fibonacci retracement levels to identify
potential reversal levels, support and resistance areas, and set target prices or stop losses.
Fibonacci retracements are created by taking two extreme points (usually a major peak and
trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of
23.6%, 38.2%, 50%, 61.8%, and sometimes 100%.

Here is a step-by-step guide to using the Fibonacci trading strategy:

Step 1: Identifying the Trend

 Determine the trend direction by using a larger time frame chart.

 The Fibonacci retracement is typically used in a trending market, so identifying a
clear uptrend or downtrend is the first step.

Step 2: Applying the Fibonacci Retracement Tool

 Once a significant movement in the market has been identified, apply the Fibonacci
retracement tool.
 For an uptrend, you draw the Fibonacci lines from the bottom to the top of the
trend. For a downtrend, you draw from the top to the bottom.

Step 3: Looking for Confluence

 Find areas where the Fibonacci retracement levels align with other technical
indicators, like moving averages, trend lines, or candlestick patterns.
  The more confluence you find at a Fibonacci level, the higher the chance it will act as
strong support or resistance.

Step 4: Entry Point

 Wait for the price to reach a Fibonacci level.

 Look for signs of price stalling or reversing with candlestick patterns (like a Pin Bar)
or other indicators signaling a reversal at these levels.

Step 5: Placing the Trade

 Enter a buy order if the price finds support at a Fibonacci level in an uptrend.
 Enter a sell order if the price finds resistance at a Fibonacci level in a downtrend.

Step 6: Stop Loss and Take Profit

 Place a stop loss just below the recent swing low in an uptrend or above the swing
high in a downtrend.
 Your take profit can be placed at the next Fibonacci level, up in an uptrend, or down
in a downtrend.
 Alternatively, traders may use a risk-reward ratio to set targets.

Step 7: Managing the Trade

 Adjust your stop loss to break even when the market moves in your favor.
 Consider taking partial profits at various Fibonacci levels.

Important Considerations Fibonacci Trading Strategy

 The 50% level is not a Fibonacci ratio, but it is included because markets tend to
retrace about half of a major movement before continuing the trend.
 The 61.8% level is often considered the “golden ratio” and is watched by many
traders.
 Fibonacci retracement levels are not foolproof; they are better used as a tool within
a broader trading strategy that includes other forms of analysis and risk
management.

Risk Management in Fibonacci Trading Strategy:

 Only risk a small percentage of your trading account on any single trade.
 Be mindful of economic news releases that could cause volatility and deviate the
price action from your analysis.

Backtesting and Practice

 Test the Fibonacci trading strategy on historical data to see its effectiveness.
 Practice in a demo account to understand how the Fibonacci levels can play out in
real market conditions.
Fibonacci trading requires patience and discipline, as not all levels will hold or result in a
trend continuation. Additionally, it is important to note that Fibonacci levels are more like
zones than precise levels and may require a trader to be flexible with their interpretations.
In the next section, we will discuss the following Fibonacci confluence strategies in detail.

 Fibonacci with support resistance entry method

 Fibonacci with trendline entry method
 Fibonacci with moving average entry method
 Fibonacci with price pattern entry method
 The Fibonacci convergence entry method

In the next article, I will discuss the Fibonacci Trading Strategy using the Confluence Factor
with Examples. Here, in this article, I try to explain the Fibonacci Trading Strategy with Real-
Time Examples. I hope you enjoy this Fibonacci Trading Strategy article. Please join
my Telegram Channel and YouTube Channel as well as my Facebook Group to learn more
and clear your doubts.

Fibonacci Trading Strategy using Confluence Factor

In this article, I will discuss the Fibonacci Trading Strategy using the Confluence Factor with
Real-Time Examples. Please read our previous article discussing the Fibonacci Trading
Strategy with Real-Time Examples. The following Key pointers are going to be covered in
this article.

1. Why does Fibonacci Work?

2. Fibonacci Trendline Confluence Trading Strategy
3. Confluence of Fibonacci with Price support or resistance or supply demand zone
confluence trading strategy
4. Confluence of Fibonacci with moving average confluence trading strategy
5. Fibonacci with Multiple Confluence Trading Strategy

Fibonacci Trading Strategy using Confluence Factor

Principles of Market Trends

As you know, price action has a zig-zag form

1. Movements with the trend are called “impulses/extensions.”

2. Movements against the trend are called “correction/retracement.”

Fibonacci RETRACEMENT

After beginning a new trend direction, the price will retrace before continuing in the trend’s
direction. Therefore, we use the Fibonacci tool to identify the following probable support
and resistance levels. The Fibonacci retracement level predicts the maximum level at which
retracement is likely to occur. Traders have a good opportunity to start new trades in the
trend’s direction at these retracement levels.
Fibonacci EXTENSION

Traders can use Fibonacci extensions to set profit targets or predict how far a market may
rise when a retracement is complete.

For more about the Fibonacci trading strategy, click here

Why does Fibonacci Work?

Many traders put alerts at different Fibonacci retracement levels and look for trade
opportunities at a better price.

1. The price action trader also looks for buy-on dips in established uptrends
2. And any other indicator trader also looks for entries like a trendline. moving
average etc

All these confluence factors increase the probability of success

What is the Fibonacci retracement trading strategy?

Area of support in the uptrend and area of resistance in the uptrend. The fundamental idea
behind the Fibonacci retracement trading strategy. states that after beginning a new trend
direction, the price will retrace before continuing in the trend’s direction. Therefore, we use
the Fibonacci tool to identify probable support and resistance levels. The retracement level
predicts the maximum level at which retracement is likely to occur. Traders have an
excellent opportunity to start new trades in the trend’s direction at these retracement
levels. The Fibonacci retracement levels are 23.6%, 38.2%, 50%,61.8%, 78.6%, and 100%.

Next possible support levels are marked if the stock moves up

Basic Fibonacci Trading Strategy

Fibonacci Trading Strategy with Confluence

What is the Area of Confluence?

Confluence means finding multiple reasons for taking a trade. “Area of Confluence” in
trading refers to a certain price zone or level when several technical analysis tools and
indicators converge and suggest the same possible price movement. Confluence zones are
considered stronger levels of support or resistance since the interaction of several
parameters adds more support to prospective price action. Many traders take entry at a
zone with the same view, creating momentum in your favor.

The Fibonacci with confluence factor trading strategy involves combining the use of
Fibonacci retracement levels with various other parameters to identify potential trade
opportunities.

Finding Area of Confluence in Fibonacci Trading Strategy

Here are some confluence factors that can be used along with the Fibonacci retracement
trading strategy

1. Fibonacci retracement
2. Horizontal support and resistance
3. Supply and demand zone
4. Trendline
5. Moving average
6. Chart pattern

More the confluence, the stronger the signal

Basic things that look in trading Fibonacci confluence trading strategy

1. Trend trading
2. Clear impulse move
3. The first pullback in a newly established trend

Fibonacci Trendline Confluence Trading Strategy

The Fibonacci with trendline trading strategy involves combining the use of Fibonacci
retracement levels with trendlines to identify potential trade opportunities in the financial
markets.

A trendline is a straight line that connects two or more price points and is used to identify
the current trend’s direction in a market. In the context of the Fibonacci with trendline
trading strategy, trendlines are used to confirm the trend’s direction and determine the
validity of the Fibonacci retracement levels.

Here is how the strategy works:

1. Identify the trend: Search for an instrument that is either rising (higher highs and
higher lows) or falling (lower highs and lower lows)
2. Draw a trendline: Draw a line on the chart that connects two or more lows (for an
uptrend) or two or more highs (for a downtrend) to indicate the trend. You can use
the trendline as a level of support or resistance to assist you in deciding whether to
buy or sell.
3. use the Fibonacci retracement tool to find out key levels of retracement and look
for the confluence of both trendlines with the Fibonacci retracement level
 4. Identify entry and exit points: If the price is in an uptrend and above the trendline,
consider buying near the support of the trendline. Consider selling at the trendline
resistance if the price is below the trendline and the trend is downward.
5. Stop loss and target: – Put stop-loss orders below the trendline in an uptrend or
above the trendline in a downturn to reduce risk. Additionally, consider using profit
objectives to maximize profits at predefined levels.

BELOW IS AN EXAMPLE OF A BANK NIFTY DAILY TIME FRAME

FOR MORE ABOUT TRENDLINE, click here

Fibonacci with Support and Resistance or Supply and Demand Zone Confluence Trading Strategy:

Many traders combine the confluence of Fibonacci retracement levels with support and
resistance levels or supply and demand zones to find suitable entry and exit opportunities.
This method combines Fibonacci retracement levels with significant support and resistance
levels to pinpoint places where the price may reverse.

With this approach, traders look for confluence between important support and resistance
levels, supply and demand zones, and Fibonacci retracement levels.

Here is a step-by-step guide on how to use the confluence of Fibonacci retracement levels
with support and resistance levels

1. The first step is to identify a clear trend in the market. This can be done by looking
at the price action. means there should be a clear impulse to move beyond support
resistance.
2. The second step is to identify key support and resistance levels or supply and
demand zones in a clear trend. This can be done by looking for previous price levels
where the price has breakout or reversed.
3. The third step is to use the Fibonacci retracement tool to find out the key level of
retracement and look for the confluence of both support and resistance with the
Fibonacci retracement level.
4. Identify entry and exit points: If the price is in an uptrend, consider buying near the
support of the trendline.
5. Stop loss and target: – ABOVE ENTRY SIGNAL HIGH IN DOWN TREND.

Here is an example of a nifty 2-hour time frame.505 Fibonacci retracement with flip
resistance and then a downtrend continued
Below is the example of Fibonacci with a supply and demand zone and then a downtrend
continued

Fibonacci with Moving Average Confluence Trading Strategy:

Using two well-known indicators, the Fibonacci plus moving average confluence trading
technique can spot probable market trends and reversals. Traders look for confluence
between these two indicators to confirm their trading decisions, and the strategy is popular
among technical analysts for its accuracy in identifying potential trading opportunities.
 1. Plot moving averages on your chart. Moving averages can help identify the trend’s
direction and provide potential areas of support and resistance.
2. Use the Fibonacci retracement tool to plot the Fibonacci levels between a high and
low point in the trend.
3. look for confluence between the Fibonacci levels and the moving averages. If a key
moving average aligns with a key Fibonacci retracement level, such as the 61.8% or
50% retracement, this creates a stronger area of support or resistance.
4. if you find a confluence between the Fibonacci levels and the moving averages, the
next step is to make a trade decision. For example, if you find a confluence of
support at the 61.8% Fibonacci retracement level and a 50-moving average, you may
decide to enter a long position at that level.

BELOW IS AN EXAMPLE OF A DAILY TIME FRAME IN NIFTY. HERE THE confluence of 61.8%
Fibonacci retraces with flip support and 50 simple moving average; then, the price continues
with the trend

Fibonacci Trading Strategy with Multiple Confluence Factors

The Fibonacci, with multiple confluence methods, uses a variety of indicators to determine
possible places of support and resistance for entry and exit in the market.

finding important Fibonacci retracement levels and combining them with other confluence
factors like moving averages, trend lines, support and resistance levels, supply and demand
zones, and chart patterns. Traders can get a more complete picture of the market and
potentially find more precise trading signals

Let us see another example of the nifty daily time frame and the extension of the previous
chart. Here, the confluence factor falling wedge, 100 simple moving average with 61.8%
Fibonacci retrace also one can see a double bottom reversal
Fibonacci Trading Strategy using Confluence Factor Summary:

A Fibonacci trading strategy using confluence involves combining Fibonacci retracement

levels with other technical indicators or chart patterns to increase the likelihood of a
successful trade. The idea behind using confluence is that if several different indicators all
suggest the same thing, the signal is stronger. Here’s how to set up a Fibonacci trading
strategy using a confluence factor:

1. Identify the Trend: Determine the market’s overall trend using trendlines, moving
averages, or other trend indicators. Fibonacci is often most effective in a trending market.

2. Draw Fibonacci Retracement Levels: Once you have identified a significant high and low
point in the trend, draw Fibonacci retracement lines. These horizontal lines indicate where
support and resistance are likely (common levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%).

3. Look for Confluence: Identify areas where Fibonacci levels coincide with other support
and resistance indicators. This can include:

 Horizontal support/resistance levels from previous price action.

 Trendlines that intersect with Fibonacci levels.
 Moving averages (e.g., the price is at a Fibonacci level and a 200-day moving
average).
 Round numbers or psychologically significant prices.
 Candlestick patterns that suggest a reversal at a Fibonacci level.
 Other technical indicators, such as RSI, MACD, or Stochastic, show overbought or
oversold conditions at a Fibonacci level.

4. Trade Execution
  Entry Point: When you see confluence between Fibonacci levels and other
indicators, enter a trade. For instance, if the price pulls back to a 61.8% retracement
level, which aligns with a key moving average and a previous resistance-turned-
support, this could be a strong signal to enter a long position.
 Stop Loss: Place a stop loss just beyond the confluence level to minimize potential
losses if the market does not move as expected.
 Profit Target: Set profit targets at the next Fibonacci level or use other price targets
based on your analysis. Traders often use the Fibonacci extension tool to identify
potential profit-taking points.

5. Risk Management

 Calculate the risk-reward ratio to ensure it aligns with your trading plan. A common
practice is to look for a risk-reward ratio of at least 1:2 or 1:3.
 Do not risk more than a small percentage of your trading capital on any single trade.

6. Monitor the Trade: Monitor the price action closely after entering a trade. If the price
moves through the confluence level without showing signs of reversal, be prepared to exit
the trade to limit losses.

7. Review and Adjust: Review the outcome and process after the trade. Whether it was
profitable or not, consider what worked and what didn’t. Use this information to refine your
strategy.

Using Fibonacci retracement levels in conjunction with other trading indicators and
techniques can increase the robustness of your trading signals. However, no strategy is
foolproof. It’s important to remember that market conditions are always changing, and
flexibility and good risk management are crucial for long-term trading success.

Here, in this article, I try to explain the Fibonacci Trading Strategy using the Confluence
Factor with Real-Time Examples. I hope you enjoy this Fibonacci Trading Strategy using the
Confluence Factor article. Please join my Telegram Channel, YouTube Channel, and
Facebook Group to learn more and clear your doubts.