Let’s take a look at one of the technical confirmations that we look for to confirm a trade we might want to place. The currency pair is irrelevant, we are simply identifying a trade that will earn a profit from the forex market we are looking at.
Sell Trade with Fibonacci Levels
I have highlighted the basic characteristics with the coloured arrows in the image and then described the arrows below the image. The light blue box in the corner of the image highlights the description given below for the red orange and green arrows in the image…
The X Axis
First things first, if you look right at the bottom of the image you can see that weeks are displayed along the x axis so we are looking at the daily chart but its quite condensed as you can see. The time frame on the chart represents about 9 to ten months.
When you get to a real world forex broker account you will encounter variations in the charting user interface (UI), so some might just have the months displayed along the bottom of their daily chart. You need to ‘roll with the punches’ to some extent with these variations in UI between what you see here, or on a training course, and what you see when you create a real forex account and start placing your first trades. Stick with it… you will get it!
RED ARROW – The ‘Soft’ Level of Resistance
- Image shows two or three higher price levels (peaks).
- These are ‘hard’ levels typically seen better if you switch to a weekly or even monthly time-frame on the chart. Below that there are a series of lower price levels with alien drawn through them. The red arrow points to this ‘Soft’ level of ‘resistance’ where the price level tends to come down from once it is reached.
ORANGE ARROW – The ‘Hard’ Level of Resistance – Our ‘Swing High’ Starting Point for Fibonacci Retracement
Every Forex chart with have a Fibonacci drawing tool whereby you can draw the Fibonacci pattern onto the price chart to show natural price patterns the often indicate price moves.
Select the Fibonacci Tool and draw down from the most recent ‘hard’ level as above. The 0.5 Fibonacci level typical to show, in this instance a price level at with resistance is being met and indicates the price will fall.
The two other main Fibonacci price levels at which the price action tends to follow the trend is at or near the 0.618 or 0.382 level
GREEN ARROW – The Pin Bar Reversal & Hourly Check
The final major bearish indicator is our, hopefully now familiar, ‘Pin Bar Reversal’ bar with the open and close prices for the day in the lower half or third of the price bar for the day (which has been preceded by 3 or more consecutive days of price increases (or ‘buyer’ bars).
For this bar, the final check is on the hourly chart, so if you switch to the hourly chart on you charting tool, you are looking for a bearish pattern of a ‘double top’ or a ‘head and shoulders’ pattern to confirm the trade.
What Happened in this Trade? The ‘Trailing Stoploss’ Saved the Day…
The lower line in the diagram (shown by ‘0.000’ on the Fibonacci scale) shows the lower level of ‘support’ that was the ‘target’ (limit) for our trade. This was not hit by the trade, but because we trailed out stop-loss, we made a healthy profit from this trade. (The diagram below is the same chart but zoomed in to show bigger daily bars and where we moved the stop-loss to on each second seller bar…
The final buyer bar on the diagram triggered our stop-loss.