· 2013. 7. 5. · take note, not all swing points qualify for the technique that i will show you....

www.ForexProfitModel.com

Presents

Fibonacci Code

By Joshua Schultz


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Fibonacci Code

Hi guys!

I’m going to show you a very simple way to trade using the Fibonacci retracement tool.

After you read this report, it would probably be the first time for you to see how simple

trading with Fibonacci can be.

Many new traders get discouraged and think it’s too complicated to trade with the

Fibonacci retracement tool, that’s why I want to show you a great and simple technique

which allows you to gain plenty of pips using just one retracement level. Let’s begin…

The first thing we need to do is to be able to identify the points we’ll use for drawing the

Fibonacci retracement later on. I’ll talk more about that in the next section. For this

report, we consider a high to be a swing high point if it is preceded by two lower highs.

In contrast, we consider a low to be a swing low if it is preceded by higher lows.

Image 1


Take note, not all swing points qualify for the technique that I will show you. We’ll only

consider swings that reach 100 pips or more, so we’ll use the crosshair tool to measure

the moves. You can find this on your toolbar (Image 5), or just activate it automatically

by clicking on your mouse scroller.

Image 2

For an up move, we start to measure from a swing low to a swing high (Image 3A), and

for a down move, we measure from a swing high to a swing low (Image 3B).

Image 3A Image 3B

The first number you see is the number of candles that formed that swing, the second

number is the number of points, and the third number is the price at that level. To get

the pip value for 5 digit brokers, consider the last digit of points as the first decimal

place. So in Image 3A, you have 1067 points, which is equivalent to 106.7 pips. In

Image 3B, you have 1159 points, which is equal to 115.9 pips.

Now, let’s talk a little bit about Fibonacci retracements.


The Fibonacci retracement shows you the ratios of the Fibonacci series of numbers.

The sequence goes from 0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and on to infinity. The

numbers after 0, 1 and 2 are computed by adding the next two consecutive numbers.

The Fibonacci ratios are 0%, 23.6%, 38.2%, 50%, 61.8%, 78.6% and 100%, and so on

and so forth. These represent the mathematical relationships between the series of

numbers. Not to worry, in this technique that I will show you, we will only pay attention

to one number, the 38.2% level (Image 4).

Image 4

This level is considered to be the most common Fibonacci retracement level that price

almost always retraces to, especially on the EURUSD 4 hour chart after big price

swings.


So here’s how to apply the Fibonacci retracements on your chart. First, click on Insert,

select Fibonacci, and then Retracement (Image 5). Draw the Fibonacci retracement by

clicking on the lowest price and drag to the highest price before releasing your mouse

button. That’s for an uptrend.

Image 5

In a downtrend, you have to apply the Fibonacci

retracement by clicking on the highest high then

dragging your mouse to the lowest low (Image 6).

We’ll be using the EURUSD 4 hour timeframe,

then we’ll drop to the 30 minute chart to find the

best entry point.

On the EURUSD 4 hour chart, we want to look for

big price swings, which are moves that reach 100

pips or more. That’s because big price moves

tend to run out of steam and are meant to retrace

or even reverse sooner or later.

Image 6


Identifying the right entry is a vital part of the system. If we can do this, we are golden.

One of the best ways to tell if price has lost steam is to employ an oscillator. I’ll show

you how to refine your entries by finding clues as to when the price will reverse and

using the Stochastic Oscillator to confirm these clues.

First apply the Stochastic Oscillator on your 30 minute chart. Open your Navigator

window, then the Indicators list, and double click on Stochastic Oscillator. A dialogue

box will pop up where you can set the parameters. Use the default settings (5,3,3) and

change the colors as you can see below. The Main Stochastic is blue and the Signal

Line is red. Once done, click on OK and you will see a separate window under your

chart.

Image 7

The Stochastic Oscillator is composed of two lines, the Main Stochastic and the Signal

Line. Generally, if the Main Stochastic is above the Signal Line, we’re in an uptrend, and

if it’s below the Signal Line then we are in a downtrend. Price moves tend to reverse

once the Stochastic reaches the oversold or overbought levels and crosses back out.


Alright, let’s get to some examples…

On the image below, points A and B are valid swing points, and the move is about 112

pips. So this is our first clue that price will soon retrace. The next clue is that after the

long bullish candle, the price is having a hard time continuing the up move. Another

indication is that price is unable to reach the previous resistance level. So, we apply the

Fibonacci retracement here.

Image 8

Let’s see what’s happening on the 30 minute chart at this time.


Here, we will look for more clues that the current swing on the 4 hour timeframe has

ended and price has began to retrace. As you can see below, the price had begun to

move in a range. This tells us that the up move is losing steam. After the long blue

candle, price turned around right away to the downside and formed two bearish

candles.

The Stochastic went above the 80 level so price is considered to be overbought and will

soon go down. This is later confirmed when the Stochastic crossed back below the 80

level as well.

Image 9

All these things tell us that price is in a retracement, so we can enter a sell trade. In the

example above, we should enter at the close of the second bearish candle, at 1.2350.

The stop loss should be a few pips above the previous swing high, which is at 1.23815,

and the take profit should be right above the 38.2 level, which is at 1.2331.


Let’s take a look at a buy trade example. On the image below, you can see a big move

up on the EURUSD 4 hour chart. It’s about 165 pips distance from point A to point B, so

this is a qualified move that is meant to run out soon. Another clue that tells us this price

will soon retrace is the fact that the bearish candle tried to exceed the previous lows,

which can be considered a support level, but the price went back up, unable to close

beyond that level.

Image 10

Now let’s go to the 30 minute chart and look for our entry.


On the 30 minute chart (Image 11), you can see the weakness of the move down. You’ll

notice the small candles and the price was ranging for a while. The price made its final

move down and was followed by strong bullish candles.

If you look at the Stochastic Oscillator, you will notice that it has reached below 20 level,

which means the price is oversold ant it will soon go up. When the Stochastic crossed

back above the 20 level, this indicates that the price has began to go up and we can

now enter a buy trade.

Image 11

The best entry would be at the close of the long bullish candle at 1.2257. The stop loss

has to be set a few pips under the previous swing low, at 1.2222, to make sure that we

get out of the trade if price goes the wrong way. The take profit must be set right under

the 38.2 level, which is at 1.2285.


It is important to note that we should only consider entering a trade only if there’s

enough space to earn a profit from the point of entry to the 38.2 level. If the possible

entry price is too close, then it’s best to skip the trade. This technique has a very high

success rate if it is done properly. The best thing you can do is to go back to the history

of your 4 hour charts and practice identifying these setups, and you’ll see how effective

this simple technique is.

Now you have another great and simple technique to help you become a more

successful trader.

I hope you’ve learned a lot from this report. Enjoy!

Sincerely,

http://www.forexprofitmodel.com


· 2013. 7. 5. · take note, not all swing points qualify for the technique that i will show you....

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