Fibonacci Lines

As many of you know that Fibonacci Lines are some type of resistance and support levels, which help us to predict where the market possibly move.

We know that the market moves up and down most of the time and usually after one big move there will be a correction and Fibonacci lines can help us to predict where the correction might end. But you still need to remember that Fibonacci levels do not guarantee anything so you are not suppose to trust it 100%.

Let see how we can work or let say I work with Fibonacci Levels:

1. How to draw Fibonacci Lines

Let see, if we had for example a good downtrend and noticing the market starting to slow down at the end and begging to correct itself, then we would draw Fibonacci Retracement from the low of a candle to the high of the candle (I use the ends of the bodies of the candles).

if it’s uptrend than we draw it the other way around from the high of a candle to the low of the candle.

2. Most Important Fibonacci Levels

Fibonacci Retracement levels – you can see them all on the picture below, during trading and in different situations each level could be important but usually the most important are 50% and 61.8%, though 38.2% and 78% also need to pay attention on.

Fibonacci extension – if the trend continues after a correction or an attempt for correction than the most important extension levels are – 138,2% and 161.8%, also – 118% and 127%.

3. Main factors to consider

Trading with Fibonacci lines more effectively you need to consider some other factors:

1. you need to identify the trend;
2. you need to check the situation on the market in total to understand what is happening with it, for example check the monthly chart and analyze what was happening for the last months and years;
3. you need to use some other support and resistance lines (identify the channels, triangles…);
4. very important – Main Economical events and news

4. The ways to trade Fibonacci Levels

One of the most common way is to buy or sell after correction around levels 50% – 61,8 %, and then follow the trend using Fibo Lines to close the position.

Here is one good example – EUR/USD, 1H chart, we had a downtrend, drawn Fibo lines, market correction reached level 61,8% – we would SELL here. After that we would watch the market, predicting it continuing the downtrend.

Some traders would usually watch the market without placing the Stop Loss and Take Profit, some would place the Stop Loss slightly above the level 100% and Take Profit around 138,2% or 161.8%. The best way is to watch the market, analyze the situation and move Stop Loss every time the market moves down.

The most important level 0.0%, usually if the market would brake it it would mean that the trend will continue, if not it would mean that the market changing the trend. In our example the market broke that level and reached 161.8% and went lower.

So we could walk away with the profit around 100 pips, or we could continue follow the downtrend, or we could close some positions around different levels, it would depend on your style of trading.

Another way to trade Fibonacci levels – when the correction finished and market continue its trend and brakes the level 0.0%.
In our example market correction was finished at the level 61.8%, but we did not sell and decided to wait for the market continue the downtrend. The market was moving in the middle for a while and finally broke the level 0.0%.

Here we would need a bit more confirmation, in this example the market formed the channel, so we could draw it and use the system which I use – 20 pips up from it and 20 pips down – Sell. After that as usual we would follow the trend changing the stops and closing some positions.

If there is no good channel, like in our next example, then you could look for 2 good full candles. Here we have an uptrend and the small correction finished and market trying to brake the level 0.0%, but we have to wait for one nice green candle to cross that level and then we would wait for the second nice green candle which should be bigger then the first candle and higher.

Here we had 3 attempts of braking the level – in first, which failed – it was a good candle which crossed the line, but next candle was red, then small green, red again; second attempt also failed – there were 2 green candles which touched the level with the ends of their bodies, then red candle, small green, red; finally the third attempt was successful – good green candle crossed the level, after that there was green but very small candle so we waited for the next good green candle, which closed higher and it was a signal to Buy.

After that we would follow the trend as usual, changing Stop Loss, closing some or all positions at level 161.8%. And if we are looking for downtrend then the candles will be red and the second will be lower then the one which must cross the level.

If you use these two ways of trading Fibonacci Levels you would need few days, what I mean is – it could take you few days to find the entry for trade or you could be in the trade for few days.

So now, how I use Fibonacci Lines in my day trading – I do not use Fibo lines to enter the market I always draw the channel as you know and use Fibo to exit the trade not just with my 10 pips but bigger profit, if I can watch the market I would follow the trend and change the stop, if I can’t watch the market I would place the orders to Take Profit for 10 pips as usual and additionally around important Fibonacci Levels.

For best results it’s always better to watch the market around 06:00am – 16:00pm GMT (or London +-1h) or later if there are news. Or you can place the alarms around important levels, so you can control the situation and analyze the market.

Here is an example of my trade, I draw the channel as usual, I identified the uptrend and it’s correction, but I could not watch the market all day, so I draw Fibonacci Retracement instead of extension for the uptrend. I thought, yes it would go up, but what if it will turn, correct that small downtrend and continue go down, so I would better take profit around level 61.8%, it’s safer than go for the higher level.

So I did, I walked away with my usual 10 pips profit + 40 pips thanks to Fibonacci. But if I would watch the market that day I would not place orders to take profit at 61.8%, I would follow the trend and walk away with at least 80 pips, or, there were news that day and if it would be possible when the market started to move fast high to close positions at 150 – 200 pips profit

Another example, channel as usual and Fibonacci retracement, predicting the end of uptrend correction around level 61.8%, but to be safe I chose level 38%, because it was quiet day with some but not major news for EUR/USD. I walked away with my 10 pips + 30 pips profit. If I would watch the market my profit would be 10 + 50 pips.

And last very good example of trades to possibly avoid. As usual I draw the channel and Fibonacci Retracement to predict the end of uptrend correction.

First of all the channel was bad, and it’s better to avoid channels like this one, it was hard to draw the top line, I chose the level 23%. The uptrend was a bit small should of been higher then the previous uptrend but it stopped.

So I was hoping that it should continue go up and brake level 0.0% but if it would go down I thought it would reach level 61.8% which was only around 20 pips away from the channel, too low should not go for trades like that.

But I risked it and placed my orders as usual 10 pips profit and 30 pips using Fibo lines up and down. As I did not watch the market, the result was – I made my usual 10 pips profit, but with Fibo lines I lost 30 and made 30 back.

So ones more, for best results watch the market, if you can’t – don’t go for risky trades.

If I would watch the market that day I would close my loosing trade at break even or with minimum loss after the market tried to brake level 0.0% second time unsuccessfully and walked away with 10 – 40 pips profit.

Finally, Fibonacci Lines could be used on any pair and time frame, I usually use Monthly, 1H, 30m and 15M time frames.

Here are Fibonacci levels if you don’t have them all you can add them in Fibonacci Retracement – Fibo Properties.

0 – 0
0.236 – 23.6
0.382 – 38.2
0.5 – 50.0
0.618 – 61.8
0.78 – 78
1 – 100
-0.18 – 118
-0.27 – 127
-0.382 – 138.2
-0.618 – 161.8
-1 – 200
-1.618 – 261.8

Sorry for my English, if you did not understand something, pl ask questions, I’ll try to respond ASAP. 🙂

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Fibonacci Lines

1. How to draw Fibonacci Lines

2. Most Important Fibonacci Levels

3. Main factors to consider

4. The ways to trade Fibonacci Levels

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