This trading strategy combines the use of Fibonacci levels with various technical indicators such as RSI and moving averages and can be implemented in any currency pair, as well as any time frame that allows you to apply Fibonacci retracements and extensions to previous movements from the market.
Remember to practice first on a demo account before trading with real money.
Trading system configuration
The indicators used in this trading strategy are the following:
- 1 RSI of 14 periods at close
- 1 SMA of 8 periods at close
- 1 EMA of 5 periods at close
- 1 SMA of 200 periods at close
- Fibonacci retracements.
The price chart will look like this:
Trading system rules
The following are the rules for short trades (apply inversely for buy trades):
- Identify points A and B and plot Fibonacci levels
- Wait for the crossing of the EMA (5) and SMA (8) moving averages in the bearish direction when the market is close to 50%, 61.8% or 78.6% Fibonacci retracement.
- Short signal is confirmed with the RSI.
- You can verify the short convergence with the price rebound in the SMA (200) and in some of the Fibonacci levels.
- The Stop Loss is placed at the most recent maximum, or above a fibonacci level.
- The price objetive to take profits can be determined using a Risk-Profit ratio of 1 to 1, so if your Stop Loss is 50 pips place a take profit order of 50 Pips + Spread from the entry point. If your entry is based on a chart formation review the pattern theory and apply the take profit corresponding to the chartist figure.
- Another way to take profits is when the RSI comes out from oversold condition. You can also take profits when there is a crossover of the moving averages SMA (8) and EMA (5) in the opposite direction to your transaction.