Fibonacci Trading Strategy

Fibonacci Trading Strategy Basics

The Fibonacci trading strategy is a long-term strategy based on support and resistance. Fibonacci numbers are an important indicator of support and resistance in trading. Many algorithms and traders respect the Fibonacci levels.

At a glance – Fibonacci trading strategy

Time needed: 5 Minuten.

The 2 steps of the Fib trading strategy explained:

  1. Open a position

    Once you have charted your fib retracement, you can jump in to a position directly above a support. After that, make sure to set a stop loss order as a hedge below the level of the entry.

  2. Profit taking

    Take your profit either at the upper end of the current fib level or at another resistance.

How the Fibonacci tool works

On most exchanges with Trading View, Fibonacci numbers can be included through the toolbox on the lower left side. Refer to the following screenshot:

Fibonacci tool
Fibonacci tool on Bitfinex with Tradingview

For an ascending trend, you now place the tool at the lowest point of the trend and drag it to the highest point, see figure:

Draw the fibonacci levels
Attach and pull up.

The finished image now shows the different fib levels:

Fibonacci level
The Fibonacci Levels

What do the Fibonacci levels indicate?

Basically, the higher the time frame considered, the more valuable the statement. A fibonacci on the 1m (1 minute) chart says of course less than a fibonacci on a 1d (1 day) chart. Basically, the lower the Fibonacci levels, the stronger the resistance from the bottom to the top but also from the top to the bottom. If the price is above the fibonacci level, it is considered a support. If the price is below the fibonacci level, it is considered a resistance.

Fibonacci Trading Strategy Guide

Step 1 – Entry

Beim Fibonacci Trading geht es um den Einstieg direkt über einen Support mit der Absicherung (Stop Loss) unter dem Fibonacci Level. Hier ein Beispiel:

Fibonacci trading entry
Fibonacci Trading Entry

Since the Fibonacci levels form a strong support, it is often worthwhile to enter at this point with a hedge below the level. The ratio between risk and reward is often very good here.

Step 2 – Take Profit

For the take profit, either the upper end of the Fibonacci level or further resistances in the chart are suitable. The stop loss should be tightened either way once you reach a certain point in profit. How far also depends on your fees and your initial risk. You should take at least 2x more profit than you were in risk by the stop loss.

Fibonacci Trading – Timeframe

This strategy is more suitable for traders with a bigger time frame. Of course, the Fibonacci levels can also be traded on smaller timeframes, but the risk of being stopped out too early is very high. If you prefer to trade in smaller timeframes we recommend our HTF strategies.

What is your experience with Fibonacci Trading so far? What is your Fibonacci trading strategy? Feel free to write us in the comments, we are keen to hear from you.

Frequently asked questions and answers about the Fibonacci trading strategy

How does Fibonacci Trading work?

Fibonacci retracements are mathematically based on the golden ratio or fibonacci numbers. A total distance between two prices is divided into several areas of different sizes defined by the fibonacci numbers. Since many traders follow these numbers, there is often a tradeable, self-fulfilling prophecy.

How to trade Fibonacci?

There are several popular Fibonacci strategies. You can read about one of them in this article and start trading yourself in no time!

Where to set the fibonacci retracement?

First, observe whether the market is currently in an uptrend or downtrend. In a downtrend, plot the Fibonacci retracement from the local high to the local low. In an uptrend, draw the Fibonacci retracement from the local low to the local high.

What does the Fibonacci retracement tell us?

It shows potential resistance and support lines and thus allows speculation on different price targets and directions of movement. Among other things, the Fibonacci retracement is based on the idea that a movement in one direction always entails a movement over a certain proportional range in the other direction.

Important risk notice:
This service or the provider advertised here is only suitable for professional traders. Users without sufficient experience usually suffer a total losswhile trading here. Trading with leverage is highly risky and leads to poor risk management. Use this service only as a professional trader with sufficient experience in trading and leverage.

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