Fibonacci Golden Zone Strategy
Fibonacci Golden Zone Strategy
In this strategy report, we are going to share with you a simple Fibonacci Trading Strategy
that uses the golden ratio which is a special mathematical number that can be used to
model and find patterns as well in nature as in the financial markets.
Note** We use our Fibonacci Golden Zone Indicator which you can find here:
with the Fibonacci Golden Zone Strategy. It is not mandatory, however, makes this
strategy 100% easier to follow and has many features we added in that the stock fibonacci
drawing tool does not give you!!
There are multiple ways to trade using the Fibonacci Retracement Tool, but we have found
that one of the best ways to trade the Fibonacci is by focusing on the golden ratio 1.618 or
0.618 which is probably one of the most important numbers in mathematics and in our day
to day life as well.
The Fibonacci Retracement tool was developed by Leonardo Pisano, who was born around
1175 AD in Italy was known to be "one of the greatest European mathematicians of the
middle ages."
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Well, let’s first imagine a sequence of numbers which start with number 1. The second
number is also 1 and then going forward every next number is equal to the sum of the
previous two numbers.
To answer this question let’s plot the number 1 and number 2 on a horizontal axis.
Now, what we’re going to do is we’re going to go through the Fibonacci sequence and take
every number in the series and divided by the previous number in the sequence and plot
our answer on the same axis.
This number is known as the golden ratio which approximately equals 1.618.
I know this is math and for many it can be quite boring. So, you might be asking what the
purpose of the Fibonacci sequence is.
Well, let’s have a look at some of the examples where you can find the golden ratio that
will probably blow your mind.
First of all, if you measure the distance between the edges of your fingertips and your
wrist and then you measure the distance between your wrist and your elbow it will be
approximately 1.618.
Next, if you take an x-ray of any starfish and you measure its base and take it as 1 then the
distance between the superior limbs will be 1.618.
No one knows why they are so common in nature and in the world, but what we can do is
maybe take advantage of it including in trading. If the Fibonacci sequence has applicability
in so many parts of our day to day life, many market practitioners have found out that the
financial markets respect the Fibonacci numbers and especially the golden ratio.
By now you should be impressed by the many applicability of the Fibonacci sequence.
Leonardo Pisano developed a simple series of numbers that created ratios describing the
natural proportions of things in the universe.
And these numbers have been used by traders now for many years!
Your charting software should come with a standard Fibonacci retracement tool; however,
you are the one that puts this on your chart.
The bottom line is that many traders use this tool which is why it is highly important to
have a trading strategy that uses this.
A Swing High is a candlestick with at least two lower highs on both the left and right of
itself.
A Swing Low is a candlestick with at least two higher lows on both the left and right of
itself.
If you are unsure of what that means, let’s take at a chart to see what this looks like:
So here is what it would look like then on your chart with the Fibonacci Retracement:
Now, what if we told you there is a simple way to draw the Fibonacci retracement levels
on your price chart.
Well, our team at Trading Strategy Guides has developed a proprietary Fibonacci Golden
Zone indicator that once placed on the chart it will instantly plot the Fibonacci
retracement levels of the last swing.
You’ll not need to pick by yourself the swing high/low levels as the Fibonacci Golden Zone
indicator will do the job for you.
You’ll notice that the Fibonacci Golden Zone indicator comes with another interesting
feature that plots on all swing high and low waves how far away it has moved in relation
to the previous swing high.
If you try to measure that move with the classical Fibonacci Retracement tool you’ll only
be able to see the 23.6%, 38.2%, 50%, 61.8% 76.4% and 100%.
It’s quite clear that the Fibonacci Golden Zone indicator i s superior but we still haven’t
covered all the trading features. The Fibonacci Golden Zone indicator comes with trading
alerts that will notify you whenever the price is near the golden zone between 38.2% and
61.8%.
The Fibonacci Golden Zone Dashboard will display all the default time frames starting
from the 1 minute time frame all the way to the bigger monthly time frame.
Simple enough! Now, let’s go ahead and look at all we will need with this trading strategy:
It can also be used on any time frame. (1 day, 4 hours, 1 hour, 15 minutes, etc.)
This is a trend trading strategy that will take advantage of retracement of the current
trend.
The Golden Zone is represented by the price area between the 38.2% and 61.8% Fibonacci
retracement. Obviously, the 61.8% is the most critical number in our strategy.
Now that we’ve learned the importance of the Fibonacci retracement levels and why they
work in analyzing the financial market let’s have a look at the rules of the Fibonacci
Golden Zone Strategy.
This is simple enough. We need to make sure it’s either an uptrend or a downtrend.
Conversely, if you look at your screen and see the market falling from the upper left corner
to the bottom right corner that’s a downtrend. In other words, a market that does lower
lows followed by lower highs is defined as a downtrend.
Inversely, in a downtrend, we want to only sell because that’s how a smart person trades
the market.
In order to put to the test and show you the power of the Fibonacci Golden Zone Strategy,
we’re going first to highlight a sell trade.
Rule #2: Wait for the Market to Reach the Golden Zone 38.2 –
61.8 Fibonacci Retracement
In the figure below, we have the AUD/USD 1h chart which is trading in a downtrend and
price has already reached the golden zone 38.2% - 61.8% of the Fibonacci Golden Zone
indicator.
An interesting feature of the Fibonacci Golden Zone Dashboard is that it displays for each
individual time frame whether the price is trading above the golden zone or below the
golden zone.
This brings us to the next step that we need to look after before entering a trade:
The Fibonacci Golden Zone Dashboard is quite intuitive to be used and in this regard has
been developed to make your job much easier.
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The Dashboard will display a red rectangle in front of the time frame where the price is
trading below the Golden zone, which is a bearish signal.
The Dashboard will display a green rectangle in front of the time frame where the price is
trading above the Golden zone, which is a bullish signal.
Note* Refer back to this picture when you use this strategy since this basically shows us
what our charts will look like before we make a trade.
Now, we can notice that on the majority of the time frames AUD/USD is trading below the
Golden Zone, which overall is bearish for the market and secondly, it supports our sell
trade idea.
Obviously, for a buy trade idea, we want the Fibonacci Golden Zone Dashboard to display
the majority of the time frames above the Golden Zone.
We want to trade on the safe side of the market and in this regard as an extra measure of
caution we will not enter as soon as the 61.8% golden ratio is hit, but we’re going to enter
only if we see the market finding resistance and is unable to close above it.
In other words, we wait for the candle to close below the 61.8% before deploying our hard
earned cash into the market.
As you can see the Fibonacci golden ratio can give us great entry points, especially in a
trending market, which is one of the reasons why we want to trade in the direction of the
primary trend.
This rule is the critical step to the strategy so you need to pay close attention.
Because we need to price to hit the golden ratio 61.8%, stall, and go back in the direction
of the trend.
As I said, the market tends to follow the Fibonacci sequence, but sometimes it will fake
traders out and they will end up losing a lot of money when it breaks the trend.
This happens every single day, which is why it is critical to have a strategy that will help
you know if this break may occur.
With that being said let’s now define where one should hide his protective stop loss.
The obvious place to place the stop loss is simply above the 100% Fibonacci retracement
which should also coincide with the previous high or the starting point from where the
Fibonacci retracement levels are measured.
Obviously, for a buy trade, the stop loss should be placed below the previous swing low.
Our stop loss should not be hit very often if we’re correct in our analysis because
eventually, the bigger trend should resume.
Since we’re focusing on a sell trading example, we have as a primary rule to take our profit
just below the previous swing low.
If the market doesn’t break below the previous swing high/low but the Fibonacci Golden
Zone Dashboard shows the majority of the time frames trading on the opposite side of our
trade we want to exit early.
In our example, we can see the market is struggling to break below the previous swing low
and at the same time the Fibonacci Golden Zone Dashboard shows the majority of the time
frames trading above the Golden Zone which is showing a shift in the sentiment.
In this regard, we want to close at the market our trade and take the profits.
There is no point forcing the market, even though later she might have another attempt
and break below the swing low.
Summary
What makes it unique is our proprietary Fibonacci trading indicators that will help you
have a better experience using the Fibonacci retracement levels.
With our proprietary indicators Fibonacci Golden Zone Dashboard and Fibonacci Golden
Zone Indicator once can conquer the markets.
So, our proprietary Fibonacci indicators really can make the difference between success
and failure.
We all know that not every trade will look exactly like the example that we provided.
So, below you will find some examples (that we backdated) that use the Fibonacci Golden
Zone Strategy.
You can do this also, which is actually what we always recommend for any trader who is
using a new system. You could also use your demo account and make trades based off of
this strategy to help you perfect this.
We look at this as a basic guideline to trading. You can always adjust it or tweak it, based
on your rules you use when you trade.
Another way to find the dominant trend is to look on the daily time frame and see if we’re
trading above the golden zone or below the golden zone. You don’t have to switch the
time frame, simply glance at the Fibonacci Golden Zone Dashboard indicator.
If we’re trading above the golden zone the trend is bullish. Inversely, if we’re trading
below the golden zone the trend is bearish.
Apply the rules from Step #2 through Step #7 to enter the trade, place your stop loss and
take your profit.
Apply the rules from Step #2 through Step #7 to enter the trade, place your stop loss and
take your profit.
Our proprietary trading indicator Fibonacci Golden Zone Dashboard uses a dynamic
algorithm to determine what the best trade to take is. You’ll notice that for each individual
time frame the Fibonacci Golden Zone Dashboard will issue buy and sell signals.
Depending on your preferred time frame you can choose which signals you want to take.
In the example below, we have a buy signal on the GBP/USD daily chart:
Actually, we have a buy signal issued on the 30-minutes time frame as well, but we’ve
chosen to take the daily signal. From here on we can apply the same rules described in the
Fibonacci Golden Zone Strategy.
On rare occasions when our proprietary indicator Fibonacci Golden Zone Dashboard will
show bullish signals on all time frames than this is one of the most powerful trade signals
you’ll get.
In the example below, the Gold chart is showing a bullish signal on all time frames. In this
situation, it’s best to enter anywhere between the 38.2 – 61.8 golden zone because the
61.8 golden ratio will be rarely hit as the prevailing trend is too strong to provide us with
such a deep retracement.
Note** You Can Print out The Pages Below so that you can
keep these Rules Handy When you Trade this strategy.
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