Trade Fibonacci Retracements Aligned With Fundamentals
Just following up from a question. It was a question from Grant asking us how we should use a Fibonacci retracement. Should we use it on the time frame that we are trading or should we use it on a higher time frame?
So, as a more general rule we tend to stick to a Fibonacci based on the time frame that we are trading. So, if I’m going to trade a day trade and focus on the year and the now I’m obviously going to look at something like the M30 or maybe even the M15 time frame. And then I’m going to use the Fibonacci that is most relevant to that specific time frame.
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So, I’m trying to take a bullet straight on the Aussie Yen as an example. We have a look at this, we can see we’re on the M30.
Now, if I want to find a potential pull-back area from this move to the upside looking for a potential pull-back, I can basically draw in the Fibonacci from the most closest swing low to the swing high. And then we can see that gives me a 50% retracement roundabout in that overall area.
Now, obviously, if I’m looking for a potential swing trade on the pay, then I can use a much higher time frame. Something like the H4, maybe even the H1. And then obviously that’ll be a different retracement level.
So, I’m still looking for a potential buy trade. On the Aussie Yen I can use this recent swing and that move to the upside.
So, if we quickly draw in the Fib we can use it from that swing low to that swing high. And that means we’re looking for a potential 50% retracement coming in at that overall area.
So, it’s always best whenever you use your Fib is not to over complicate it too much by looking at various time frames and, you know Where is the 50% on the H4 and where is it on the H1? And where is it on the M30? Normally, that just complicates the trade.
When you’re looking for a swing trade, use it on that time frame you’re trading. When you’re using it for a day trade, use it on that particular time frame that you’re trading. Always the simplest and easiest way to use a Fibonacci retracement.