Simplified Fibonacci Trading Strategy and Tools You Need For MT4
Table Of Contents:
- Simplified Fibonacci Trading Strategy and Tools You Need For MT4
- Essential tools used in this system
- Functions of the essential tools
- The long trade setup sequence
- The short trade setup sequence
- Simplified Fibonacci Trading Strategy and Tools You Need For MT4 – Useful advice
- Simplified Fibonacci Trading Strategy and Tools You Need For MT4 – Conclusion
Please note: This strategy was publicly published in the trading community and is free to use. We do NOT make an attempt to decide if this strategy is profitable or not, because we know that the major factors regarding trading results are the skills/experience of the trader who executes the strategy. Therefore, we are mainly explaining the components and rules of the strategy. If applicable, we are highlighting advantages, disadvantages and possible improvements of the strategy.
The Simplified Fibonacci Trading Strategy and Tools You Need For MT4 is specially designed to let you profit from small moves in direction of a major trend reversal. As the name of the strategy implies the entry signals are calculated based on Fibonacci values. With this strategy, you enter when the price retraces to a certain percentage.
With the help of the Fibonacci retracement tools, the major trend reversals can be detected with high probability after climactic price moves. Climactic bullish price moves are looking similar to stock market bubbles. E.g. the tulip bubble in the 17th century showed such a climactic price chart. Now let’s see how we can rely on the Simplified Fibonacci Trading Strategy and Tools You Need For MT4 and take our trades in any market.
Essential tools used in this system
- Swing high and swing low
- Fibonacci retracement tools
- Bullish and bearish candlestick patterns
- Support and resistance level
Chart setup with the Simplified Fibonacci Trading Strategy and Tools You Need For MT4
Functions of the essential tools
Before you dive into the tutorial, we should learn about the proper use of these essential tools. Unless we have a strong idea about the critical elements used in the Simplified Fibonacci Trading Strategy and Tools You Need For MT4, we will never feel confident with this strategy.
Swing high and swing low
A swing is also known as the record high for a certain trading instrument. When the price of an instrument reaches its peak we call it the swing high. On the left side of the swing high, you should spot lower highs in the market.
Identification of key swings
A swing low is the record low for certain trading instruments. As price reaches a new bottom or creates a support zone, we call that certain point the critical swing low. A critical swing low acts as a major support level for the trading instrument.
Fibonacci retracement tools
Before we learn about the Fibonacci retracement tools, we need to understand the retracement phase. When the price of an asset moves against the prevailing trend to a certain percentage it is known as a retracement. Usually, the retracement ends after the price hits a critical Fibonacci retracement level.
After the end of the retracement, the price starts to move in favor of the existing trend. Retail traders use tools like Fibonacci retracement, fans, and arc to determine an endpoint of the retracement. But if the price of an asset breaks the 61.8% retracement level, you should consider it as a sign of trend reversal.
Bullish and bearish candlestick pattern
The concept of the bullish and bearish candlestick is very handy when it comes to the trade execution process. A candle having a closing price higher than its opening is known as a bullish candle. On the contrary, if the closing price is lower than the opening price, we have a bearish candle.
We need to spot a bullish candle to confirm the end of the bearish correction. On the other hand, we should be able to spot a bearish candle near the bearish retracement level at the end of the bullish corrective move. Note that, these corrective moves tend to be completed after the price reaches major support or resistance.
Support and resistance level
As the price ends its corrective move after hitting the major retracement level, we may also refer to these levels as support and resistance level. A support level should have a cluster of candles below that certain zone or it should be formed at an important swing low.
Identification of the support and resistance level
On the contrary, resistance levels should have a cluster of candles above that certain zone. To find the bearish retracement level, you need to draw the Fibonacci retracement points from swing high to swing low. And try to rely on the higher time frame as it will give you better data.
The long trade setup sequence
Opening a long trade with the help of the Simplified Fibonacci Trading Strategy and Tools You Need For MT4 requires some basic knowledge about the trend. First of all, we need to identify a bullish trend so that we can take the trades at the end of the bearish correction. To understand this system much better, we are going to explain the trade execution process in sequential steps.
Conditions to execute the long trade
- Find a trading instrument that is already in an uptrend. The trend should be determined by using the H1, H4, or daily time frame.
- Draw the support and resistance levels in the chart by using the key swing points. It is better to consider the support and resistance level as a zone instead of fixed levels.
- Draw the bullish Fibonacci retracement level from the key swing low to the key swing high. Look for the bullish candle at the 38.2%, 50%, or 61.8% Fibonacci retracement levels.
- Try to spot a bullish candle at the important Fibonacci retracement level. After identifying the bullish price action confirmation signal, you may expect a bullish rally.
- The endpoint of the retracement should match with the important support level drawn in the chart. Note that, you should not consider the support level drawn in the minute time frame.
- After checking all these conditions, you should analyze the risk factor and execute the buy order in the market.
Execution of long trade
Stop loss
There are two ways by which you can set the stop loss while using the Simplified Fibonacci Trading Strategy and Tools You Need For MT4. You may place your SL below the bullish candlestick pattern or you may place it below the 61.8% retracement levels.
Take profit
Since the Simplified Fibonacci Trading Strategy and Tools You Need For MT4 is more like a trend trading strategy, we may set our take profit to the key swing high or at the next major resistance level. Try to maintain a risk to reward ratio of 1:4 while using this strategy.
The short trade setup sequence
We will learn to take the short trades in a more advanced way. Instead of looking for the bearish price action signal, we will be looking for the doji or the bearish pin bar patterns only. Let’s check the prime conditions by which we can open new short trades in this market.
Conditions to execute the short
- Pick an asset that is already in a strong downtrend. The trend should be determined by analyzing the formation of highs and lows.
- Draw the bearish Fibonacci retracement levels from the key swing high to the key swing low. Look for the rejection of the price at the important Fibonacci retracement levels.
- You need to spot the bearish pin bar or the doji pattern at the 38.2%, 50%, or 61.8% retracement levels to execute the trade.
- Check the economic calendar and make sure there is no high-impact news release in the upcoming 2 hours since major news releases can often cause a sudden change in the trend.
- After checking all these conditions, you can open the short trade but do not forget to take calculative risk.
Execution of the short trade
Stop loss
The stop loss should be placed above the bearish pin bar or the doji pattern. In case you want to use a conservative approach, you may place the SL above the 61.8% retracement level. And always be ready to accept few losing trades while using the Simplified Fibonacci Trading Strategy and Tools You Need For MT4.
Take profit
The take profit is generally set to the nearest support level. You may find the strong level by analyzing the critical low of the market. Maintain a 1:4+ risk to reward ratio while shorting the asset at an important Fibonacci retracement level.
Simplified Fibonacci Trading Strategy and Tools You Need For MT4 – Useful advice
The novice traders often think the trend will never change. Even after the price breaks the 61.8% retracement level, they consider the price movement as a false break. But the break of the 61.8% retracement clearly defines the change in the trend. So, accept the fact that trend can change all of a sudden but usually the news act as a trend reversal catalyst.
Simplified Fibonacci Trading Strategy and Tools You Need For MT4 – Conclusion
Learning about the Simplified Fibonacci Trading Strategy and Tools You Need For MT4 is more like learning every important detail about this market. For instance, you need to rely on the support and resistance along with the price action signals. So, we suggest the rookie traders use this strategy in the practice trading account. Once you become skilled in following the key steps mentioned in this strategy, you can start trading the real market with managed risk.
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