In this episode of Truth About FX, Walter lets out some insider tips on the best way to trade Fibonacci. He shares his trading story and how he ended up using it as retracements. According to him, the best way to use Fibonacci is to for when the market is trending. He also digs in to the psychology on the two best ways to trade it.
Download (Duration: 03:32 / 8.5 MB)
In This Episode:
01:15 – Fibonacci grid
02:18 – Fibonacci extension
03:06 – a little freak out
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. This is a question that I got recently and I totally dodged but what’s the best way to trade Fibonacci?
Walter: Fibonacci, right. I like them as retracements. I don’t know. That’s what I would say. The first class I ever took… I took class on forex trading when my friend said, “Go quit your job. Come down where I live and learn how to trade.” I was like, “Okay.” That is how I got into at the course.
The guy who taught us, it was week long trading course. I actually didn’t even know what he’s talking about when he was explaining it. But he was saying that everyone says that the market market goes to 61.8 and I was like, “What is he talking about?” He said, he record it, was 50%. I know a lot of people include 50% on their Fibonacci grid.
I think the best way to — and I do this with the breakout like the news trading breakout. The best way to use Fibonacci, I think is to let’s say the markets been in a really strong move and you know it’s going to retrace and you missed it.
So, you want to get in on the retrace. You think it’s trending. What I would do is just pull that Fib grid across and see if any of those levels lined up with support and resistance. And maybe like the 38.2 or whatever it is lines up with a nice support level and it’s a bullish breakout. So you wait for it to pull back 38.2 and that’s where you’ll get in your the trade there.
So that’s what I would do. I do, do that occasionally. The only other use I like to use it for is if the market is trending and it’s making a new high or a new low so there are no support levels in the immediate future.
You think it’s going to keep going but you’re like, “Okay, where is it going to go?” You can do a Fibonacci extension where you draw the Fib grid from the local high to the local low. So it’s a little peak and a little low, extend that out and then you find the 161.8, 261.8 like those levels, you can use those as targets. As potential targets for that trending market that’s just taking up the new high and the new low. So that’s what I would do and I do that too.
Also, I don’t know why if it lines up with the realm number, I like it even better. I don’t know why. It’s just a psychological thing but those are the only two. So retracements and then Fib extensions when you don’t have any support and resistance levels for targets. Just because I like support and resistance levels and targets. If I don’t have them, I just have a little freak out, “Oh, what do I do?” So Fib extensions makes sense to me.
Hugh: Okay, cool. That makes sense.Thanks, Walter.