The Fibonacci Fan forex trading strategy is forex strategy that utilizes the iFibonacci.ex4 forex indicator.
This indicator is based on the Fibonacci numbers and can be used to create several strategies around these Fibonacci numbers.
The strategy discussed here uses the Fibonacci fan component of the indicator to create the strategy.
MetaTrader4 Indicators: iFibonacci.ex4 (default setting)
Preferred Time Frame(s): 30-Minutes, 1-Hour, 4-Hours,
Recommended Trading Sessions: Any time the signal appears on the charts.
Currency Pairs: Any
Buy Trade Example (click the image for full size)
The strategy is to look for when the Fibonacci fan is traced on the charts. The fan is made up of diagonal lines which are drawn into space on the charts, waiting for future price action to define activity around the lines. The expectation is that the price action will retrace to these lines and form the basis for long or short entries.
Long Entry Rules:
A long position is initiated when the following indicator pattern is displayed on the chart:
- Price action retraces to a Fibonacci fan line. The price candle must bounce off this line i.e. must touch any of the lines without closing below the line.
- Once the candle has touched the line without closing below it, set a long entry at the open of the next candle. If the previous trigger candle closes at some distance from the fan line, allow the price to pull back before initiating the long entry.
Stop Loss for Long Entry
A few pips below the Fibo fan where the long trade is initiated.
Exit Strategy/Take Profit for Long Entry:
- For this indicator, you can use a Fibo fan above the entry or a Fibo retracement line above the entry Fibo fan. In both cases, use the Fibo fan/retracement line where a resistance occurs.
Short Entry Rules:
For the short entry, the trader should look for the following:
- Price bounces off a downward facing Fibonacci fan line. In this example, this occurs in two areas: one at the 0.00 line and the other at the 38.2% Fibo fan line.
- The short entry should be made as shown on the chart below.
Stop Loss for Sell Entry
A few pips above the Fibo fan where trade entry is made.
Exit Strategy/Take Profit for Sell Entry
To take profit from this trade, the following should be used.
- The Fibo fan located immediately below the trade entry point. If the price action is so strong as to break this landmark, then the Fibo fan/retracement area next in line should be used.
About The Trading Indicators
The iFibonacci.ex4 indicator is a two-in-one indicator which encompasses the Fibonacci fans and the Fibonacci retracement levels. This provides an opportunity for the trader to use any of the two components to setup strategies for trade entries and exits.
Once the trader applies the indicator to the charts, the key levels are setup by the indicator and projected into the future, allowing the trader to use the fan lines and retracement lines as landmarks for trading.