In the recent weeks our full focus at Elite CurrenSea has been on Fibonacci. Grinding into the details is, we think, the best method to learn a topic quickly and efficiently.
During my live webinar at Admiral Markets on Forex trading, I was using the Fibonacci tool for a potential long entry on the GBP/USD. Let me explain the analysis why I was looking for an upside trade.
When reviewing the 4 hour chart I noticed that the GBP/USD:
1) Made a clear bounce at the support trend line (blue) from the daily chart;
2) Made a clear bounce at the 78.6% Fibonacci retracement level;
3) Made a strong bullish momentum after hitting the support with big bullish candles;
4) Made 5 moves up which indicates an impulsive price action as wave traders know all too well;
5) Broke above the 21 ema moving average band, which indicates the trend shift.
During the live webinar I therefore stated that I am looking for a long upon the pullback. I would be interested in any Fibonacci level, including the 50% or deeper if price continued to lower levels.
Therefore I placed a Fibonacci tool on the bullish moment on the 1 hour chart and saw that price had already reached the 50% Fib. This could easily be a bouncing spot.
My next step was to zoom into lower time frames like the 5 and 15min chart to establish whether price was going to:
a) BOUNCE at the 50% Fibonacci retracement level OR
b) BREAK below the 50% Fib and head lower to the 61.8%.
Eventually I used my time factor methodology for establishing the entry (green box). This method showed to me that the chance of upside had significantly increased. (please visit a webinar at Admiral Markets or write us an email to [email protected] to know more about the time factor method).
Also the awesome oscillator clear showed the decrease of momentum although the upside momentum was really only confirmed after the 2 smaller spikes upwards (black arrows and purple box).
Eventually I exited the long trade setup on the GBP/USD after price was showing a decent consolidation zone. The blue line markets the exit where as the green is entry and red is stop loss.
The profit amounted to +112 pips versus a 25 pip risk.
That is a reward to reward to risk ratio of 4.48.
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