Fib Retracement Trading

In the last article, we discussed how we can use the Fibonacci Projection Levels while trading breakouts. Breakouts tend to fail a lot with the price action retracing itself. Let's discuss the second situation in this article, where the breakout fails and the price action retraces itself. Can we still use Fibonacci Levels in trading a failed breakout. Sure, we can. We will be using Fib Retracement Levels to gradually enter the market this time. Once again, suppose we are trading one standard lot (100,000 units) of EURUSD currency pair. The price rises from 1.2200 to 1.2300 that is 100 pips as before in the last article. But this time, we are not sure about the breakout continuing so we take a more conservative approach.

You enter the market with 1/4 lot (25,000 units) at 1.2300 just like before. If the prices continue to rise just like before, you can still profit from that move by gradually adding to the partial position to target the exit of 1.2400. Now, suppose the price doesn't rise.

Instead, soon you find the price to be at 1.2262 which comes out to be the 38.2% Fib retracement level. You enter the market again at this 38.2% Fibonacci Retracement Level with an additional ¼ lot (25,000 units). Your cost now reduces to 1.2281.

Now, suppose the price action bounces up from this Fib Support Level and the price rallies up from this point, you can once again profit from your profit target of 1.2400 with a much better price.

But let's assume, this does not happen and the retracement continues. When it reaches the 61.8% Fib Retracement Level, you again enter the market with an additional ½ lot (50,000) units. Your cost of entry now declines to 1.2259 from 1.2300. If the prices simply rallies back from this point back to your original price level, you will still be profitable.

Place the protective stop for the trade at the 76.1% Fib Level which comes out to be 1.2220. Your risk for the whole trade is 39 points.

Now, if the price action again reverses and starts rising, you can take profit favorably at 1.2338. This is the 138.2% Fib Projection Level. The risk for this trade is 39 points and the reward is 79 points giving you an excellent risk to reward ratio of 1:2. You can even use a trailing stop once the price starts rising to continue in the trade as long as possible.

After reading these two articles, you must have realized how by using Fibonacci Levels as flexible support and resistance zones, you can manage your trades in whatever direction price action goes.


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Mr. Ahmad Hassam has done Masters from Harvard University. Learn this powerful Fibonacci Retracement Method FREE that pulls 500+ pips per trade. Get these 3 Swing Trading Systems FREE.