Forex Fibonacci Retracement Strategy For Beginners
The Forex retracement strategy for beginners follows the prevailing market trend and is based on two popular Fibonacci retracements levels.
The strategy allows traders to buy and sell pairs with great accuracy near the 38.2 and 50.0 percent Fibonacci retracement level in a bullish/bearish market trend.
The 38.2% and 50.0% acts as a support level during a bullish trend and as a resistance level during an uptrend.
The strategy incorporates a crossover trend-following mechanism to confirm the setup from the Fibonacci retracement indicator.
This strategy plays out well on all time frames and works for all type of currency traders.
MetaTrader 4 Indicators: Three_Color_MA.ex4 (Default Setting), Moving Average.ex4 (Parameters Modified; Period=28, Style=Yellow), TmaSlope.ex4 (Default Setting)
Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour, 4-Hour, 1-Day, 1-Week, 1-Month
Recommended Trading Sessions: Any
Currency Pairs: Any pair
Buy Trade Example: EUR/USD (EURO / US Dollar), H1 Chart
Long Entry Rules
Initiate a buy entry if the following indicator or chart pattern gets put on display:
- If price pulls back tothe 38.2% Fibonacci support level following a retracement (between Points A & B) off a prior bullish trend as illustrated on Fig. 1.0, price is said to be driven to the upside i.e. a trigger to go long on the designated currency pair.
- If the yellow 28 SMA Metatrader 4 indicator line crosses below the multi-colored Three_Color_MA indicator line in a bottom up manner as indicated on Fig. 1.0, the overall market sentiment is said to be bullish, as such a trigger to go long on the selected currency pair.
- If the gray, green & lime histograms of the TmaSlope custom indicator align above the zero reference level as seen on Fig. 1.0, bulls are said to driving sentiment, hence a buy alert is in the cards.
Stop Loss for Buy Entry: Place stop loss below the most recent low.
Exit Strategy/Take Profit for Buy Entry
Exit or take profit if the following rules or conditions takes precedence:
- If the yellow 28 SMA indicator line intersects the multi-colored Three_Color_MA indicator line during a bullish trend, it is pointing to diminishing bulls power, as such an exit or take profit stance is advised.
- If the TmaSlope custom indicator pops up a gray histogram below the 0.00 horizontal level as shown on Fig. 1.0, bulls are said to be closing their positions increasingly, as such an exit or take profit stance will do.
Sell Entry Rules
Enter a sell order if the following holds true:
- If price pulls back tothe 50.0% Fibonacci resistance level following a retracement (between Points A & B) off a prior bearish trend as depicted on Fig. 1.1, price is said to be pressured lower, therefore a sell alert is looming.
- If the yellow 28 SMA forex indicator line crosses above the multi-colored Three_Color_MA indicator line in a top downward manner as exemplified on Fig. 1.1, the general market sentiment is said to be bearish, as such a trigger to go short on the designated forex pair.
- If the gray, fire brick & red histograms of the TmaSlope custom indicator align below the zero reference level (see Fig. 1.1), more and more bears are said to driving sentiment, as such it is a signal to go short on the currency pair of focus.
Stop Loss for Sell Entry: Place stop loss above the most recent high.
Exit Strategy/Take Profit for Sell Entry
Exit or take profit if the following takes center stage:
- If the yellow 28 SMA indicator line intersects the multi-colored Three_Color_MA indicator line while a bearish trend is ongoing (refer to Fig. 1.1), bears power is said to be halting, as such an exit or take profit stance is recommended.
- If the TmaSlope custom indicator pops up a gray histogram above the 0.00 horizontal level, a bullish reversal is said to be in the offing, as such an exit or take profit stance will suffice.
Sell Trade Example: EUR/USD (EURO / US Dollar), H1 Chart
About The Forex Technical Indicators Used
The Three_Color_MA is an alternative Moving Average that plots an exponential moving average with the specific period marking diverse color movement upwards and downwards.
The 28 SMA (Simple Moving Average) is a technical analysis indicator that smooths out price data by constantly creating an updated average price over 28 periods.
The TmaSlope indicator is one of the variant of the triangular moving average (TMA).
Hence it is a double smoothed indicator that shows us possible changes in price action over a specific given number of price bars.
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