[Tips] High-Probability Trade with Fibonacci Retracement

How To Use Fibonacci Retracement to find High-Probability Trade Setup

Brief Definition:
Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician Leonardo Fibonacci in the thirteenth century.
In technical analysis, Fibonacci retracement is created by taking two extreme points (usually a major High and Low) on a chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, 78.6%, and 100%.
Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels.

These ratios seem to play an important role in the financial market and can be used to determine critical points that cause price to reverse. The direction of the prior trend is likely to continue once the price has retraced to one of the ratios listed above.

Tips for Effective Setup:
1. Analyze the general overview (big picture) of price movement to the current trend.
In the above example, blue vertical line divides chart into 2 section, Downtrend on the left and Uptrend on the right.
We can use MA200 to identify the overall trend.

2. Look at the price movement carefully and then draw Fibo Ret from the extreme pivot points.
For Downtrend, drag 100% level from previous High to 0% level at the newly formed Low.
For Uptrend, drag 100% level from previous Low to 0% level at the newly formed High.

3. Pay attention to the price movement to the opposite direction of the general trend.
Wait for any price rejection to the same direction with the general trend at one of the Fibo Ret level.
Entry zone which quite popular are 38.2%, 50%, and 61.8% level.

4. Probability of success will increased if price rejection occurs at the confluence of Support and Resistance levels.
ie. confluence of one Fibo Ret level with Support / Resistance area, Trendline, or Chart Pattern.
The point is, more confluences are taking places, probability of success for price rejection at Fibo Ret level is higher.

Few Examples:
Example 1 - 3 for Downtrend case (MA200 sloping down)
Example 4 - 5 for Uptrend case (MA200 sloping up)

1. (Normal Retracement) Price reversed to the opposite direction of the trend and rejected down from around Fibo Ret 50%.
The downtrend continuation after price rejection tend to be normal and not too deep.
2. (Higher Probability Retracement) Price reversed to the opposite direction of the trend and rejected down from the confluence of 2 resistance:
Fibo Ret 23.6% and Resistance Area 110.648-110.771.
The downtrend continuation after price rejection tend to be quite deep.
3. (Highest Probability Retracement) Price reversed to the opposite direction of the trend and rejected down from the confluence of 3 resistance:
Fibo Ret 61.8%, Major Down Trendline (diagonal red line), and Resistance Area 110.275-110.346.
The downtrend continuation after price rejection tend to be very deep.
4. (Higher Probability Retracement) Price reversed to the opposite direction of the trend and rejected up from the confluence of 2 support:
Fibo Ret 38.2% and Support Area 110.648-110.771.
The uptrend continuation after price rejection tend to be quite high.
5. (Normal Retracement) Price reversed to the opposite direction of the trend and rejected up from around Fibo Ret 61.8%.
The uptrend continuation after price rejection tend to be normal and not too high.

Happy Trading...