In this section, I will explain How to use Fibonacci with combination of RSI to improve you trading results and trade trends most of the time as Fibonacci is a handy tool that let you know when to enter the market and use accurately over time by some legends and further improvement of this method has been seen.
Tools you need to use with Fibonacci Retracements method
Fibonacci is the most widely used term and every Forex trader new or experience is familiar with the term. Fibonacci is the tool that really can help you find true trends, pullbacks or Retracement and signal continuation of the larger trend.
Fibonacci retracement and expansions are the handy tool for entry and targets
We have seen people use fibonacci in elliott wave, harmonic trading and chart patterns for intraday and swing trading. But you need to have complete knowledge of swings on higher time frames as mostly fibonacci is used for reversal and one can really chase the trade too far If one has not experienced enough to know about Risk management and trading mechanical systems.
Here you see 5 minute chart of nzd dollar where price is strongly in uptrend after retracing and you just need to put RSI of (14 period) and it should be above 50 which is neutrality period for traders and look for 5 minute chart and find a swing that is atleast 40 pips and mark this area as A, and Now you just need to find out If price retrace to 61.8% fibonacci and mark this area as point B,and If price rejects from there and close above 78.6% fibonacci which is point C which is our entry price and don't remember to put your stops and it should be place just few pips below 23.6% and in this case Entry price was at 0.7149 and stops were placed just below 0.7116 risking just 33 pips and there is another rule for your target.
It clearly upto you If you look to go 1:3 risk reward or whatever ratio you like, but If you want to stay in the trend for longer periods the You just need to find another strong swings of 40 pips and when you find and price start to retrace to 61.8% fibo and rejects from there you can simply put your stops just few pips below 23.6% and hence locking the initial profit and look to do the same and this is such a powerful system that If trend is too strong you would ride that trend for 2-3 days with risking not too many and locking your risk just on the day you enter.
Power of fibonacci trading Updated Chart nzd/usd
Our initial entry was around 0.7148 and stop was placed around 0.7115 so we risk 33 pips to get atleast same amount of pips in our favor.
We were given second entry at 0.7172 and then we luckily get our stops around 0.7148 which was our first entry price and that give us confidence of smart money involvement and levels at 5 minute chart.
Third entry was offered around 0.7232 and that time our stop and trailing stop is around 0.7217 and here we can look to book profits or can risk what we afford to risk earlier which was 32 pips and because of the fact swings are so strong it is risk well worth taking and see if we can take four time reward which is very rare on intraday trading chart.
If you would have risked 32 pips initially and set to breakeven at first swing at 0.7148, and now you can look to trail your profits around 0.7217 and trade the trend If you can risk 32 pips more to gain more otherwise you would have already got 100 pips target which is 1:3 risk reward and that is forex money management is all about and you just can't just let an entry go buy when you look to ride most of the trend.
Let's repeat the entry and exit system once again.
1. You should look for strong trends where Daily RSI should be in positive slope up or down.
2. look for 5 minute chart and look for strong spike of 40-45 pips in the direction of daily trend.
3. look for first retracement to 61.8% and then look for price to close above 78.6% fibonacci and put the stops few pips below 23.6%.
4. Exit only when you find a strong spike simply retraced below 23.6%. IF you get second swing similar to first one and that repeat the clause look to set price at breakeven .
5. When you get Third entry as I show in the above chart then you can look to book partial or full profit as you should not show greed and profit is alteast 1:3 when you enter first.
