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Your Fibonacci trading questions answered

by , 17 July 2019
Your Fibonacci trading questions answered
Q. “Last month, you sent out an article about the Fibonacci sequence, explained how the different ratios act as support and resistances on any high traded market and gave us a trading strategy.

I found this fascinating and would like to try and build a Fibonacci calculator for currency pairs and markets that aren't available to trade on my trading platform.

Could you help share with me the formulas I'll need, using the South African rand, to calculate the prices traded at the following Fibonacci levels: 100%, 78.60%, 50%, 38.2%, 23.6% and 0%?”
A. It’s best to do this with a visual interpretation, so we can see what the price levels should be once we have calculated them.
  
The rising South African rand using the Fibonacci trading indicator
 
 
To calculate the prices of the given Fibonacci levels, with a rising price chart of the rand, we’ll first need to establish the HIGH price or 0% level and the LOW price or the 100% level on the chart.
 
To this you’ll simply choose the highest and lowest prices for the rand this year, where you’ll click on the low and drag it up to the high price which is:
 
LOW: 100%  = R13.2361
 
HIGH: 0% = R15.1491
 
Next we’ll need to calculate the five price levels of the rand using the most common Fibonacci levels, between the HIGH and the LOW price.
 
To do this we’ll use a simple calculation which you can use for all of the Fibonacci levels on a rising trend…
 
Here’s the calculation:
 
[(LOW – HIGH) X Fibonacci Percentage] + HIGH
 
Now we can calculate the Fibonacci price levels for the rand according to the formula we’ll use.
 
FIB LINE 1: 23.60% = [(R13.2361 – R15.1491) X 0.2360] + R15.1491
                                   = R14.6977
FIB LINE 2: 38.20% = [(R13.2361 – R15.1491) X 0.382] + R15.1491
                                   = R14.4184
FIB LINE 3: 50%      = [(R13.2361 – R15.1491) X 0.50] + R15.1491
                                  = R14.1926
FIB LINE 4: 61.80% = [(R13.2361 – R15.1491) X 0.6180] + R15.1491
                                    = R13.9669
FIB LINE 5: 76.40% = [(R13.2361 – R15.1491) X 0.7640] + R15.1491
                                 = R13.6870
 
Now you have all the formulae you’ll need to create your own trading Fibonacci calculator on any market…
 
Just a side note: I also personally built my Fibonacci trading calculator for markets that aren’t available to trade on my trading platform such as, Cryptocurrencies, Penny Stocks and even Bonds…
 
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Q. “Hi Timon, could you give me a few reasons why you use Fibonacci when you trade? Also please, please, please send more trading strategies as I’m still trying to find what best suits my trading style!”
 
A. I have three main reasons why I enjoy trading using the Fibonacci retracement indicator.
 
Reason #1: They find solid support and resistance levels
 
They are excellent for finding solid resistance (ceiling levels) and support (floor levels) on any high liquid (volume) market.
 
Reason #2: Great entry and exit levels
 
Once you have found a market you wish to trade, the Fibonacci levels are great to use in your trading strategy for finding entry, stop loss and even take profit levels. You can read more about my trading strategy for Fibonacci by going here…
  
Reason #3: Provide warning signals for possible pull-backs
 
As soon as you’ve plotted your Fibonacci indicator on the chart, you’ll be able to spot possibilities on where a market can fall or pull back to in the next few weeks. This is because once a price breaches a Fibonacci level, you’ll be able to see where the next pull back for the market’s price will be…
 
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Q. “This might be a silly question, but it’s with regards to the Fibonacci Retracement indicator. Is there some kind of rule for plotting the high and the low of the Fibonacci indicator when a market is rising or falling?”
 
A. This is actually an excellent question, and one I asked myself around 2007 when charting platforms were becoming popular…
 
I have two simple rules for knowing how to plot the high and low of a Fibonacci Retracement indicator…
 
Rule #1: High to Low in a down trend
 
When the market is falling and is in a strong downtrend, you’ll choose the Fibonacci trading indicator and click on the HIGH price and drag the cursor down to the LOW price…
 
You’ll see that your charting platform will populate the Fibonacci percentage levels where the HIGH price will be at 100% and the LOW price will be at 0%...
 
Rule #2: Low to high in an uptrend
 
When the market is rising and is in a strong uptrend, you’ll choose the Fibonacci trading indicator and click on the LOW price and drag your cursor to the HIGH price…
 
You’ll see that your charting platform will then automatically populate the Fibonacci percentage levels where the HIGH price will be at 0% and the LOW price will be at 100%...
 
“Wisdom yields Wealth”
Timon Rossolimos,
Analyst, Red Hot Storm Trader
 
P.S: If you found this article useful or you have a trading question which can help with your trading, please click here and ask away!



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