Trading

Forex Trade Examples with Fibonacci Levels

Let’s take a look at one of the technical confirmations that we look for to confirm a trade we might want to place. The currency pair is irrelevant, we are simply identifying a trade that will earn a profit from the forex market we are looking at.

Sell Trade with Fibonacci Levels

I have highlighted the basic characteristics with the coloured arrows in the image and then described the arrows below the image. The light blue box in the corner of the image highlights the description given below for the red, orange, and green arrows in the image…

The X Axis

First things first, if you look right at the bottom of the image you can see that weeks are displayed along the x axis so we are looking at the daily chart but its quite condensed as you can see. The time frame on the chart represents about 9 to 10 months.

When you get to a real world forex broker account you will encounter variations in the charting user interface (UI), so some might just have the months displayed along the bottom of their daily chart. You need to ‘roll with the punches’ to some extent with these variations in UI between what you see here, or on a training course, and what you see when you create a real forex account and start placing your first trades. Stick with it… you will get it!

RED ARROW – The ‘Soft’ Level of Resistance

Image shows two or three higher price levels (peaks).
These are ‘hard’ levels typically seen better if you switch to a weekly or even monthly time-frame on the chart. Below that there are a series of lower price levels with alien drawn through them. The red arrow points to this ‘Soft’ level of ‘resistance’ where the price level tends to come down from once it is reached.

ORANGE ARROW – The ‘Hard’ Level of Resistance – Our ‘Swing High’ Starting Point for Fibonacci Retracement

Every Forex chart with have a Fibonacci drawing tool whereby you can draw the Fibonacci pattern onto the price chart to show natural price patterns the often indicate price moves.

Select the Fibonacci Tool and draw down from the most recent ‘hard’ level as above. The 0.5 Fibonacci level typical to show, in this instance a price level at with resistance is being met and indicates the price will fall.

The two other main Fibonacci price levels at which the price action tends to follow the trend is at or near the 0.618 or 0.382 level

GREEN ARROW – The Pin Bar Reversal & Hourly Check

The final major bearish indicator is our, hopefully now familiar, ‘Pin Bar Reversal’ bar with the open and close prices for the day in the lower half or third of the price bar for the day (which has been preceded by 3 or more consecutive days of price increases (or ‘buyer’ bars).

For this bar, the final check is on the hourly chart, so if you switch to the hourly chart on you charting tool, you are looking for a bearish pattern of a ‘double top’ or a ‘head and shoulders’ pattern to confirm the trade.

What Happened in this Trade? The ‘Trailing Stoploss’ Saved the Day…

The lower line in the diagram (shown by ‘0.000’ on the Fibonacci scale) shows the lower level of ‘support’ that was the ‘target’ (limit) for our trade. This was not hit by the trade, but because we trailed out stop-loss, we made a healthy profit from this trade. (The diagram below is the same chart but zoomed in to show bigger daily bars and where we moved the stop-loss to on each second seller bar…

The final buyer bar on the diagram triggered our stop-loss.

FTSE 100 Forex Style Trade

The bullish pin bar reversal is the furthest red pin bar on the chart. Even though it finished lower on the day than it started (hence red) it was in the upper range of trading for the day and is therefore still a bullish pin bar reversal.
As can be seen in the image, this is the 3rd test on the lower trend line, so in an upward trend, a bounce off this on the upside is likely.
the Fibonacci retracement from the most recent swing low is near the classic 0.618 level of support, and from the first swing low. In this trade there also a second Fibonacci retracement indicator 0.382 from the former swing low, which is termed a ‘cluster FIB retracement‘ backing up the case for a move higher to continue the trend.
One final check on the trade is on the hourly chart which can be see in the blue box on the chart diagram above. The rightmost green bar on the hourly chart shows a second higher low showing that on an hourly basis the trend is up. This backs up the call to go long and place the trade.