Exit Strategy using Fibonacci Retracements

Hello all!

I have been a firm believer in fibonacci since I was first introduced, however, I was not always aware of the different ways they can be used in trading. At first I used them as a simple guide to possible support/resistance areas but didn't really tie them into any actual trading method (aside from scaling out at different fib levels).

We have all been in a situation where we just aren't sure when to exit, or our existing system shows an exit which we follow, only to lose out on the better part of the run. The attached strategy shows how fibs can be used to take advantage of longer trends & hopefully harvest the most pips possible out of a run.

I hope this can be of use to somebody...

Good luck & happy trading!

Daemien

thank you man, i'm on learning to use fib, it's very helpful

Hi Enno,

Yes, even with my limited trading experience I am amazed how accurate fibs can be! I hope you find it helpful!!

Take care,

Daemien

I've just added some notes to the original document. Forgot a few things...



Good luck in your trades!

Daemien

:

nice contribution damien

Thanks don - much better than my last 'system' anyways lol

Just a thought,

If you are dealing with smaller time-frames, be more specific about your fib drawing. Small retracements, plateaus (accumulation) can largely be ignored for the larger movements. Basically for all intraday charts (up to 4H) a move/retracement should be greater than 40pips from lowest low to highest high before you make it the new fib wave.

Take care & happy trading!



D.

I've just secured over 250 pips using this exit method.....

Seems to work well in most time frames as well!

D.

use zigzag indicator.. it will help

I use Fibonacci retracements for entry points too. Maybe you can advise us on it too.

Hi Netrix,

Actually, I am using Fibs for entry points as well I will try to explain - if you wish I can post some pics later.

Basically the feb levels you need are the 25, 38.2 61.8 & the 75. The area between the 38.2 & 61.8 is the center channel. 25 & 75 areas are for entry confirmation.

Let's say you open the 5 minute chart and notice a fairly large bull run that is just starting to retrace downwards (the one I use - don't worry - we're not scalping here). The run is over 40 pips long, so it becomes our main fib reference. You place a fib over this run. What you are looking for:

1. The retracement heads downwards and pierces or passes through the 38.2-61.8 center channel. It then continues downward and a WHOLE CANDLE forms beneath the 75 fib line (it doesn't cross or touch the 75 line). At this point you would enter short.

2. The retracement heads downwards and pierces or passes through the center channel. It then bounces and heads back up. It crosses the 25 fib line and a WHOLE CANDLE forms above this point (again, not crossing or touching the 25 line). At this point you would enter long.

For the 5min to 2 hour charts use a stop-loss of 40 pips upon initial entry. If you can monitor then leave it at 40 pips and use the exit strategy as posted here (At each new retracement where the main run is greater than 40 pips, you will place another fib as in the exit strategy and for a long wait for a complete candle to open/close beneath the most current fibs' 75 line). Be aware that these types of positions can last for a few days because of the exit strategy.

For the 4 Hour chart the main run to place a fib on should be greater than 150 pips and you will use an initial s/l of 150 pips. Because these will usually be a lot longer term, you will almost always end up placing your stop just below the 75 level (for long) but not exceeding 150pips. 10% of ATR works very well for # of pips below the 75 or above the 25 level for stops.

For the smaller timeframes & the 4H you want to have RSI confirmation. For long, RSI has to be greater than 50. For short, less than 50. I would recommend it to be not sitting right at the 50 area either (unless it has sharply moved across it).. if it is fairly level & really close to the 50 area then you may want to wait.

I hope this makes sense - and that I haven't missed anything. Let me know if you have any Q's!

Daemien

Hi Steve,

Thanks for pointing that out to me. I had this indicator actually but had never looked at it before. Do you know exactly what the settings are for? Seems to work well for my uses with depth @ 15.

ExtDepth

ExtDeviation

ExtBackstep

Thanks,

Daemien

Thank you for this GEM which was written in simple terms and explained very neatly so that even a newbie like myself can comprehend and implement.

Too early an exit is one of my major floors and, again last night I missed out on a couple of hundred pips.

Ah well, not to worry, everyday there is something new to learn and add to our armory in this battle for independence.

Once again, many thanks.

PS: Now, I ned to find a decent entry system instead of going in semi naked. Metaphorically, of course. Ha