Trading by using Fibonacci, in this case Fibonacci Retracement (FR) is certainly no stranger to most traders. FR helps the trader to identify the reversal strength of the ongoing trend and also helps to see which points are important to watch out for as support or resistance. FR is often used in various circumstances, both in trending markets and sideways markets.
Candlestick patterns contain with the formation of patterns resulting from the candlestick seen on our MT4 chart. Candlestick patterns are usually seen as a turning point in price changes or a continuation of the movement of a currency pair’s price. From many candlestick patterns available, not all of them must be memorized and it is better not to memorize them. Just look at the picture from the example candlestick pattern and match it with the candlestick seen on the MT4 screen.
How to use a combination of FR and Candlestick Patterns?
See the appearance of both in the picture below.
Display of Fibonacci Retracement and Candlestick Patterns on MT4
As you can see, at first glance we will only see one indicator which is FR that appears on our screen. This is reasonable because actually the Candlestick Pattern is a form of the candlestick itself and is not an indicator. For example in the picture above, we see a retracement or reversal after an increase in the price of a currency pair, where FR 0 is placed below and FR 100 at the highest point.
Then, we also see a lot of candlesticks lined up around FR 38.2 and 61.8 which indicate that most likely prices are stuck around this level. The holding of this price implies that FR 38.2 for now is the lower support / resistance point for reversal of this currency pair and FR 61.8 is the upper resistance for the movement of this currency pair.
Then, how to use both for trading entry?
Again we look at the picture before, and pay attention to the entry level that we can choose.
Example of a Entry Level by Using a Candlestick Pattern and Fibonacci Retracement
- In the picture, you can see the candlestick indecision pattern, which is a candlestick that is lined up on a level because there is no impetus to go up or down further. The main characteristic of this indecision pattern is the continued appearance of the doji, because the strength between buyer and seller is relatively similar.
- In this case, the option that can be chosen is to look at how the price responds to FR.
FR itself looks quite informative giving a hint of price movements. As mentioned above, FR 38.2 is the lower resistance or support for this currency pair and FR 61.8 is the upper resistance.
- With this information, we can do an entry buy if the candlestick crosses the FR 61.8 limit and entry sells if it breaks the lower limit FR 38.2.
Where are Stop Loss and Target Profits?
There are various approaches to determine Stop Loss (SL) and Target Profit (TP). If you see the example above, you can place SL from entry buy at point FR 38.2 and TP at FR 100. As for the opposite, if we sell sell then we can place SL points at FR 61.8 and TP at point FR 23.6 or even FR 0 , depending on the strength of the downtrend that will occur later.
Another approach is to wait for changes from the Candlestick Pattern itself. If the Candlestick Pattern begins to show signs of change, for example a doji is formed at the support or resistance point, then we can get out of the market and wait until the market is easier to analyze. We do not need to rush to make an entry if it is not time to look good entry from the FR or Candlestick Pattern.
SL and TP approaches using pips distance can also be done, it’s just that the results will be less satisfactory because the range of pips may still not touch the important point of FR. Or it could be that the pips range is too short and eventually it forms a Candlestick Pattern that is different from the initial estimate.
Keep in mind that the system using these two indicators does not always provide certainty of profit and success. Therefore the loss limit must remain and be installed at every time an entry is carried out in the form of SL. Indicators are only tools to see what is likely to happen, not tools to see the future that will happen.
Always obey the rules when making transactions, because most traders make the mistake of breaking the rules they made themselves. This rule includes not opening new positions if the existing ones are not yet closed regarding SL or TP. Do not get carried away quickly when experiencing losses or when making a profit. Keep doing the analysis with good and focused mind to achieve forex trading system that are yielding consistent profits.