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Using Fibs in the Direction of the Daily Trend

Using Fibs in the Direction of the Daily Trend

Richard Krivo, Trading Instructor

Instructor's Response:

Good work on the 1:2 Risk Reward Ratio.

While your understanding of Fibs is good and the Fib line that you have drawn is valid, the first point we as traders must take into consideration is the direction of the Daily trend and how to use Fib levels to get us into a trade in that direction.

The higher probability trade will be to wait for the current downtrend to bottom out and stall. Then draw a Fib line from the Swing High to the Swing low so we can identify a potential fib retracement level for a short entry on the pair.

Take a look at the second chart below for a visual...

chart 2 8 10 a

 

chart 2 8 10

After this current bearish move ends, using Fib levels, we would wait for the pair to retrace into the "sell zone" and stall at one of the Fib levels. Then a short position could be taken with a stop above the highest penetration of a Fib level by price.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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