Simple Fibonacci Trading - MT4/MT5 Resources

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I only started writing this post a few weeks ago, but it has evolved into something better. The basic idea is the same, we will use Fibonacci retracements that allow us to buy/sell a trend when momentum moves in the direction of the trend. We will also use the 38.2% Fibonacci extension as a profit target.

When I started on this topic, my idea was to use the 100 SMA to define the trend and then only trade in that direction, but I found this to be too restrictive and missed out on a lot of profitable trades. Now I use the zig zag indicator that comes with mt4. I have yet to find a setting that works for all currency pairs on all timeframes, but using 15 as the first setting seems to cover most possibilities. This indicator cannot be used strictly, it just helps to find the best swing highs/lows for drawing Fibonacci retracements.

I use this method on all currency pairs and all timeframes, and I prefer to find a strong trend, although if I see a trend changing or a smooth trendline forming, I am willing to take trades that don't necessarily meet the criteria. I find trend lines to be a great tool to help spot good trades with this approach.

The basic system first involves spotting impulse waves in a trend. If you don't know how to do this, there's a diagram below, or you just need to read a little more! You then plot Fibonacci retracements on the chart (again, if you don't know how you need to read more). Once the price retraces to the 50% Fib retracement level, you can place a pending order on the other side of the 38.2% level. In an uptrend, you can place a buy order of 1 pip plus a spread above the 38.2% level. The opposite is true in a downtrend. The first profit target is plus or minus 1 pip from the last swing high/low and the spread depending on direction. I took profit at that time and took half of my position. The profit target for the remaining trades is 1 pip plus the spread above/below the 38.2% Fib extension. The stop loss is 1 pip plus the spread on the other side of the 61.8% retracement.

If this all sounds too complicated, we have a tool to help. FerruFX is an excellent coder who crafted an EA to do all the work for you. Just place the little fiber on the chart and rename it "Buy" or "Sell" depending on the direction you want it to trade. If there is a retracement to the 50% level, a pending order, stop loss and profit will automatically be placed. If the price continues to exceed the 75% level, it will delete all orders as the settings are invalid. If a trade is entered, the EA will take half the profit on the first target level and trail the stop loss on the second half of the trade. Most of these numbers are adjustable in the EA, so if you want to get 66% profit at the first level, or if you want to invalidate the trade at 61.8% instead of 75%, you can. I've attached the latest version below, but it will likely be updated as we go along, so please check for the latest version.

Also attached below are some screenshots that illustrate what I'm looking for when making a trade. The first one is Euro...

Point A is the low of the current trend. Point B is the first swing high. Point C is the first retracement point, a higher low. Point D is the next swing high. At point D you can see the possible channel forming and you can draw the channel line. At point E, I have plotted the Fibonacci and validated the trade by the price hitting and just breaking through the 50% Fibonacci level. This further confirms that the 50% Fibonacci level is hit more or less simultaneously with the rising lower trendline. At point F, when the price moves, a pending order enters the trade. Now wait for point G to achieve the first profit target.

The second chart is the same EURUSD chart, slightly zoomed out. Point H is the final profit target. Note its correlation with the major resistance level ahead of 1.35. By zooming out on the chart, you can see that the trade has room to move, there are no major support and resistance levels to stop it, and it's a large enough trade to offer good risk/reward.

The third chart is AUD/USD, which is also another good channel, but this time it’s a descending channel. I entered a short trade on the last dip, hitting the first take profit level, but then reversed. I took profit on the second trade because I bought Euros and didn't want to go long another trade. It looks like we may be ready to shoot another short film.

All in all, these trades occur consistently on all time frames, where price pushes in one direction and then pulls back before continuing in the main direction. The advantage of using Fibonacci numbers in this way is that you only take a trade when the price reaches at least the 50% retracement level and then starts moving in the direction of the trend. Once you identify the swing, it is almost a completely mechanical system, the only hard part is determining the best swing to observe the retracement. I'll be posting my trades before they are set up as we go along, so if you're unsure about any of the above, read the rest of the thread and you should find out. If you still need help, please ask directly.