The second of our free forex strategies trades a confluence between daily Pivots and Fibonacci retracement levels.
The Daily Fibonacci Pivot Strategy uses standard Fibonacci retracements in confluence with the daily pivot levels in order to get trade entries. My preferred parameters are the 38% or 50% Fibonacci levels in confluence with the daily central pivot. The examples following show entries at the 38%, 50% and 62% Fibonacci retracement levels in confluence with the daily central pivot.
As with all free forex strategies, there are many possible interpretations and variations to this particular strategy. Chris Lori has a key reversal strategy called the Lori P 38 trade, available as one of the six patterns available in his High Probability Reversals Course. My particular take on this strategy is to expand the opportunities provided by loosening the entry requirements in this manner:
- look for an entry on any currency pair where the average true range for the last five day period has been exceeded in the previous day’s trading session
- at the start of the current trading session draw fibs:
- – from the previous days low to high, if price is currently above the current day’s central pivot
- – from the previous day’s high to low, if price is currently below the current day’s central pivot
- look for a confluence of Fibonacci retracement levels with the daily central pivot
- If price retraces to the confluence identified, either enter at market or wait for a confirmatory candle signal to occur at the confluence before entry. Obviously, it is more risky to enter before getting the confirmatory signal, but such an approach gives a greater possible reward to risk ratio.
Let’s have a look at a few charts to see how this works.
The first chart shows a long entry at the confluence of the 38% Fibonacci retracement and the daily central pivot:
It was possible to enter either way here, either by buying at the first touch of that level, or waiting for the morning star candle formation to form. Both entries would have given a possible target at the 127% Fibonacci extension level, which was easily reached.
The suggested stop loss for these trades is behind the Fibonacci level one level away from where you take the trade. In this case it would amount to the 50% retracement level, with a few pips extra thrown in for buffering.
The next trade shows the reverse setup of the previous trade, with a sell occurring at the confluence of the 38% retracement and the daily central pivot:
This was a nice set up given the big drop that occurred in the previous trading session. That drop signified a change in sentiment which would have added weight to the decision to sell.
Another example, again, a sell after a long run down the day before:
This time the sell occurs at the 50% retracement level, although it is not in perfect confluence with the daily central pivot. Still, a nice evening star pattern occurred with both the daily central pivot and the 50% retracement level being respected prior to entry,
The last example shows a confluence of the central pivot with the 62% retracement level, plus old lows at the left of the chart:
This is an example of the fact that any pivot level can be used in confluence with the daily central pivot. In this case price retraced to once more retest the entry-level on the next day, but you should have had profit taken out of the trade by then, if not having exited at full profit.
As always with any new strategy, and in particular free forex strategies, remember to fully back test and live test in a demo account before going live with this particular play, if you decide it is a good fit for you.