Price action Fibonacci trading strategy is one of the most advanced and profitable trading strategy used by the professional traders. Traders use the Fibonacci retracement tools to identify the market reversal point in the direction of the trend. The most important Fibonacci levels used by the professional trader are the 38.2%,50%, and the 61.8% retracement level.
Since these level act as strong support and resistance level of the pair, traders use price action confirmation signal in the relevant Fibonacci levels to take their trade. In the eyes of the expert, this system is one of the most reliable and profitable systems in the world which allows the traders to trade the market with excellent risk-reward ratio. Let’s see how the professional trade EURUSD with Fibonacci retracement tools:
Figure: Price action Fibonacci trading strategy
Professional trader draws important Fibonacci level from the most recent swing low to swing high in case of an uptrend. For downtrend, they use the most recent swing high and swing low to enter into the trade. They wait patiently for the price action confirmation signal in the important Fibonacci level. In the above figure, a bullish pin bar printed on the chart right at the 61.8% Fibonacci level. Professional traders enter long after the price action confirmation signal.
There two methods of setting the stop loss in Price action Fibonacci trading strategy. Some professional traders set their stop loss just below the price action confirmation candlestick pattern. For instance, if a bullish morning star is formed in the 50% retracement level than the stop loss will be set just below the confirmation candlestick pattern. On the contrary, some long term traders prefer wider stop loss which is set just below the 61.8 % Fibonacci retracement level. Take profit area in advanced Fibonacci is also divided into two portions. Traders book half of their profit in the most recent swing high (for long trade) and start using trailing stop loss to get the maximum profit from the trend.