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Fibonacci Trading - Scalping Technique

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In my previous article I shared about how to avoid entering at the exact Fibonacci retracement and projection. In this article, I will share with you one of my scalping techniques using Fibonacci trading.

Every trader should know how to plot the Fibonacci retracement and projection with ease. However, not everyone who knows how to calculate the Fibonacci levels knows how to trade under real market condition.

To trade the Fibonacci retracements and projections effectively, a trader must also understand the price action of the Forex market. Using candlestick formation is one of the most effective ways to determine the immediate market sentiment. A hanging man formation during a downtrend shows that the bears are losing strength and the trend is about to reverse. At the same time, we must also acknowledge that there are also Fibonacci levels to concern about. The best scenario of a rejection at the Fibonacci level is when a candlestick showing a hanging man formation closes above the 38.2% level of a Fibonacci retracement. This setup proves that the uptrend is strong and the retracement is merely profit taking. The rejection at 38.2% level also reveals that more bulls are waiting at the sideline to enter the market at a more favorable market price.

Fibonacci Trading - Scalping Technique

Fibonacci trading can be used on any time frames, even as a scalping technique on a 5-minute chart and it can be quite profitable if you know how to do it in Forex trading. Let’s look at an example at the simple illustration below; assuming that the currency pair is on an uptrend movement and the price presumably has hit a top and then reversed. We would then draw the Fibonacci retracement on the uptrend shown in Point A. The price action then retraced to near 50% and encountered good support at that price.

How to enter a position

On a 5-minute chart, you should be able to tell that the candlestick formation would give you an immediate sign of a possible bounce. On the next candlestick after the low near the 50% retracement of Point A, open long if it closes higher low than the previous candlestick. Since this is a scalping method, your first profit should be the 50% retracement resistance level (Point B Fibonacci retracement) from the original Point A 0% retracement to 50% where your position is entered. You would probably think that the profit target from the point of entry should be the original 0% retracement but that is not usually true. As in any market conditions; we are not be able to tell where the price is going next. Remember that this is a scalping technique which should help you to reap about 15 to 20 pips depending on the range of the Fibonacci retracement is drawn. This is useful if you have a tight stop and prefer not to hold position for more than a hour. You should be able to see consistent good results using this simple technique.

Sensitive Fibonacci Retracement Levels

Using a retracement calculation, you should try to identify the 38.2%, 50% and 61.8% of the Fibonacci retracements. If an uptrend is strong, the price action will most likely to see strong support at 38.2%, while at 50% would see bears pushing hard to open the gate. 61.8% should then be seen as the bulls are retreating to heal their wounds with the momentum temporarily shift with the bears.

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