Preschool>= Lesson Status ?
Kindergarten>= Lesson Status ?
Elementary>= Lesson Status ?
Grade 1 Support and Resistance Levels
Grade 2 Japanese Candlesticks
Grade 3 Fibonacci
Grade 4 Moving Averages
Grade 5 Common Chart Indicators
Middle School>= Lesson Status ?
Grade 7 Important Chart Patterns
Grade 8 Pivot Points
Summer School>= Lesson Status ?
High School>= Lesson Status ?
Grade 9 Trading Divergences
Grade 10 Market Environment
Grade 11 Trading Breakouts and Fakeouts
Grade 12 Fundamental Analysis
Grade 13 Currency Crosses
- What is a Currency Cross Pair?
- Crosses Present More Trading Opportunities
- Cleaner Trends and Ranges
- Taking Advantage of Interest Rate Differential
- Obscure Crosses
- Planning Around News and Fundamentals
- Creating Synthetic Pairs
- Euro and Yen Crosses
- How to Use Crosses to Trade the Majors
- How Cross Currency Pairs Affect Dollar Pairs
- Summary: Currency Crosses
Grade 14 Multiple Time Frame Analysis
Undergraduate>= Lesson Status ?
- Why Keep a Trade Journal?
- Benefits of Keeping a Journal
- What Should You Record in Your Journal?
- Potential Trading Area
- Entry Trigger
- Position Sizing
- Trade Management Rules
- Trade Retrospective
- Trading Journal Statistics
- Reviewing Your Trading Journal
- Difficulties of Keeping a Trade Journal
- Summary: Keeping a Trade Journal
Graduation>= Lesson Status ?
- Which Trading Style is Best for You?
- Which Currencies Should You Trade?
- What is Your Level of Trading Experience?
- Should You Be a Discretionary, Mechanical, or Hybrid Trader?
- What Kind of Mechanical System Suits Your Personality?
- What is Your Attitude Towards Risk?
- What Kind of Stop Suits Your Trading Style?
Combining Fibs with Candlesticks
If you've been paying attention in class, you'd know by now that you can combine the Fibonacci tool with support and resistance levels and trend lines to create a simple but super awesome trading strategy.
But we ain't done yet! In this lesson, we're going to teach you how to combine the Fibonacci tool with your knowledge of Japanese candlestick patterns that you learned in Grade 2.
In combining the Fibonacci tool with candlestick patterns, we are actually looking for exhaustive candlesticks. If you can tell when buying or selling pressure is exhausted, it can give you a clue of when price may continue trending.
We here at BabyPips.com like to call them "Fibonacci Candlesticks," or "Fib Sticks" for short. Pretty catchy, eh? Let's take a look at an example to make this clearer.
Below is a 1-hour chart of EUR/USD.
The pair seems to have been in a downtrend the past week, but the move seems to have paused for a bit. Will there be a chance to get in on this downtrend? You know what this means. It's time to take the Fibonacci tool and get to work!
As you can see from the chart, we've set our Swing High at 1.3364 on March 3, with the Swing Low at 1.2523 on March 6.
Since it's a Friday, you decided to just chill out, take an early day off, and decide when you wanna enter once you see the charts after the weekend.
Whoa! By the time you popped open your charts, you see that EUR/USD has shot up quite a bit from its Friday closing price.
While the 50.0% Fib level held for a bit, buyers eventually took the pair higher. You decide to wait and see whether the 61.8% Fib level holds. After all, the last candle was pretty bullish! Who knows, price just might keep shooting up!
Well, will you look at that? A long legged doji has formed right smack on the 61.8% Fib level. If you paid attention in Grade 2, you'd know that this is an "exhaustive candle." Has buying pressure died down? Is resistance at the Fib level holding? It's possible. Other traders were probably eyeing that Fib level as well.
Is it time to short? You can never know for sure (which is why risk management is so important), but the probability of a reversal looks pretty darn good!
If you had shorted right after that doji had formed, you could have made some serious profits. Right after the doji, price stalled for a bit before heading straight down. Take a look at all those red candles!
It seems that buyers were indeed pretty tired, which allowed sellers to jump back in and take control. Eventually, price went all the way back down to the Swing Low. That was a move of about 500 pips! That could've been your trade of the year!
Looking for "Fib Sticks" can be really useful, as they can signal whether a Fib level will hold.
If it seems that price is stalling on a Fib level, chances are that other traders may have put some orders at those levels. This would act as more confirmation that there is indeed some resistance or support at that price.
Another nice thing about Fib Sticks is that you don't need to place limit orders at the Fib levels. You may have some concerns whether the support or resistance will hold since we are looking at a "zone" and not necessarily specific levels.
This is where you can use your knowledge of candlestick formations.
You could wait for a Fib Stick to form right below or above a Fib level to give you more confirmation on whether you should put in an order.
If a Fib stick does form, you can just enter a trade at market price since you now have more confirmation that level could be holding.
While you are logged into your account,
you can save your progress in the School of Pipsology!
- Fibonacci Who?
- Fibonacci Retracement
- When Fibonacci Fails
- Combining Fibs with Support and Resistance
- Combining Fibs with Trend Lines
- Combining Fibs with Candlesticks
- Fibonacci Extensions
- Placing Stops with Fibs
- Summary: Fibonacci