Fibonacci analysis is a very powerful trading tool in the Daily and 4 Hour View. My most consistent profits come out of this strategy. For the traders that are uninitiated to this analysis I will briefly explain using live case studies from the EURUSD and the GBPJPY which are just now hitting the 61.8 Fibonacci retracement level and are ready to turn and head back in a bullish direction. I am also attaching charts from other trades this week that hit Fibonacci levels and reversed.
First let us understand the theory behind Fibonacci and how to draw the analysis on the charts.
1. First and foremost for Fibonacci analysis to be used we have to have a substantial move in the market in either a bullish or bearish direction. If you look at the charts attached you will see substantial bullish moves in both the EURUSD and the GBPJPY.
2. Measure the substantial move. So, once there is a strong move in the market, we use the Fibonacci tool and measure from the low of the move to the high of the move when the move is in a bullish direction and if the move was in a bearish direction, we measure from the high of the move to the low of the move. Once the move is measured lines will be drawn on the chart which will read 23.6, 38.2, 50, 61.8, 78.6 and 100. These number represent %ages of the move that was measured. So, if the Fibonacci analysis was drawn on a bullish move then the 23.6 line will be a 23.6% retracement from the top of the move. The 50 line is half way down or 50% and the 61.8 is 61.8% of the way down.
The EURUSD and GBPJPY currently have retraced 61.8% from the top of their moves. From my experience the 61.8 level is the most powerful reversal level. However, price reverses off the 38.2, the 50, the 61.8 and the 78.6. This week I had moves off most these levels. I have attached charts from successful trades this week that reversed off the above mentioned Fibonacci levels. You will see attached that the AUDJPY reversed off the 50% level, that the CADJPY reversed off the 50%, the SGDJPY reversed off the 50% and the USDJPY reversed off the 38.2.
A tip when trading 4 hour and daily Fibonacci setups is you must have patience. 4 hour candles take quite a while to form, and you have to know ahead of time that you are going to be letting these trades run for 4 hours, 8 hours and in some cases a few days. You can also scalp the initial turn off the level as there is a lot of activity off these levels.
Best of luck with this. If you have any questions, let me know.
Thank you to Wayne McDonell for teaching me Fibonacci Analysis in these larger time frames.