Trend Trigger is probably the simplest trading strategy based on Fibonacci leleves. The basic assumption here is that we are trading with the trend and that a normal and natural pullback is occurring, and this pullback will stop somewhere in our FibZone and reverse direction.

Rules For Buys (Sells Are Reversed)

1. There must be at least two higher swing high points and at least one higher swing low point. This structurally confirms we are trading with the immediate trend.
2. The current bar low must at least touch the top of the FibZone. At this point, look for an entry pattern to get you into the trade.
3. Once you are filled, a stop loss order should be placed just below the FibZone. This assumes your money management rules will allow you to risk the entire zone. If not, do not take the trade until price drops deep enough into the zone to meet your money management stop loss rules, or reduce the number of shares or contracts to be purchased.
4. Once a swing low point is determined against the FibZone, calculate the .50, .618, and 1.272 extension of the high-to-low swing into the Support FibZone. These levels will serve as profit objectives.
5. The first profit-taking area is between the .50 and .618 retracement range. Once these profits are booked, trail your stop loss to reduce risk,
6. The final objective of a Trend Trigger trade is the 1.272 extension of the high-to-low swing made into our FibZone.

Trend Trigger Strategy Example: Long

1. We have identified two higher swing high points with at least one higher swing low point.
2. Price touches the Support FibZone, and I'm long at 32,60 based on the trigger I use.
3. The initial stop is placed just below the zone around 31,00.
4. With a swing low in place, we calculate the ,50 and .618 retracement levels of the high-to-low swing into support.
5. Profits are taken on half the position between 34.57 and 35.16, which arc the .50 and .618 retracement levels. At this point, I also move my stop to breakeven.
6. The final objective on the trade is 38.47, which is the 1.272 extension of the high-to-low swing into the Support FibZone.

Trend Trigger Strategy Example: Short

1. Two lower swing lows and at least one lower swing high have been identified. Once the second swing low is made, we can calculate price resistance. That zone comes in from 927.50–941.75.
2. Price rallies up and touches the Resistance FibZone, so I go short at 927.50.
3. My stop is at 942.00. That's 145 points of risk.

4– Once a swing high is made into the FibZone, we can calculate the ,50 and .618 retracement of the low-to-high swing into our Resistance FibZone* These price levels are 916.50 and 913.50. 5, Price hits our first target and half the position is taken off around 916.00. My stop is moved down to breakeven (especially on intraday trades). 6. The final objective at the 1.272 extension of the low-to-high swing into resistance is hit at 897.50.

What if a Trend Trigger trade comes up and the FibZone is too large and I am unable to put a stop below the FibZone and risk that much?

Don't take the trade until the stock drops lower into the FibZone (for longs). If your money management rules don't allow you to take the trade, then please don't take it. Risking too much on one trade will come back to haunt you. The other choice is to still take the trade, but trade fewer shares or contracts to keep your risk in line with your money management rules.

Where do you place the stop after hitting the first objective?

Ideally a stop can be placed at your original entry price so that risk can be completely eliminated from the trade. However, there are situations where moving the stops to that level will get you prematurely stopped out of the trade. Be aware of the volatility of the stock, and avoid placing stops at round numbers or levels too close to the current market price.

How long do you typically hold these trades?

That is always dictated by the market. There was an observation that the best trades bounce immediately out of a FibZone and become profitable quickly. If you find yourself looking at a chart where price has hit our zone and it continues to print bars that hover around the FibZone, then you often scratch the trade.

Are there any confirming indicators to use with this strategy?

By definition, this is supposed to be a „trend following“ strategy. We are trying to identify pullbacks into FibZones, So, the stronger the trend, the better the opportunity. A strong ADX reading is an excellent scanning tool, as well as a nice confirming indicator. Use a 14-period ADX of 20 or greater. Ideally, the ADX line is upsloping and not downsloping. This just means the reading is continuing to go higher and the trend is getting stronger. Downsloping means the trend is losing strength.

Identifying key swing points. Highs and lows.

Before we can even think about calculating Fibonacci price support and resistance levels, we must learn to identify key swing points. Swing points are low or high points on a chart where price reverses direction. These are the key points used to calculate Fibonacci price levels. Rather than getting into a highly technical discussion of swing points, its better to provide general guidelines to be followed in choosing these swing levels.

A swing high occurs when the current high has a lower high before and after it.

A swing low occurs when the current low has a higher low before and after it.

Question: What if there are multiple lows (or highs) relatively close to the same price due to a price consolidation range? Do I use all of them to calculate Fibonacci levels?

Answer: No. For swing lows, if the lows are restively close in price, use the low furthest to the right in the consolidation area. For swing highs, if the highs are relatively close in price, use the high furthest to the right in the consolidation area.

Question: When is a swing point not valid to use?

Answer: When calculating support, a swing low is not valid when there is a lower swing low to the right of it. When calculating resistance, a swing high is not valid when there is a higher swing high to the right of it.

Creating Fibonacci levels

Let's look at a few charts to get a feel for what to look for.

In the case of this chart, we are in an uptrend and the stock has just started to make a move to the downside (A) over the last three days. Tt will be my goal to calculate a price support zone with enough strength to stop the price action from going down and reverse it back up to continue the trend that has been in place. To do this 1 need to identify a swing high (A) and multiple swing low points (B), Please note that when we are calculating support levels there is only one swing high and multiple swing lows. This is the exact opposite for finding resistance in a downtrend (one swing low and multiple swing high points). It is the consolidation areas where swing points are most difficult to determine. Just apply the general rules.

Below is a stock in a downtrend. Once a swing low (A) is made in a downtrending stock, I look for swing high points (B) to use along with the current swing low (A). These are the swings to be used to calculate Fibonacci price resistance. In (1) and (2) below, you may ask why I wouldn't use both at those swing points. This was a situation where the swing high points were close in price, so I used the one furthest to the right on the chart.

Calculating Fibonacci levels Q&A

Question: How many swing points do you use to calculate Fibonacci levels?

Answer: I'll go back as many as eight consecutive swing points. Beyond that it would be wise to shift to a higher time frame chart to analyze support and resistance. So, if you are studying a 30-minute chart and have gone back eight swing points, I suggest if you want to go back any further, shift to a daily chart.

Question: Are certain swing points more significant than others?

Answer: If a trend is in progress, I believe there are four swing points that carry the most weight. The first (A) is the swing point that was just made. Second (B) is the swing point made immediately before reversing into the trend that is in place. The third and fourth (C, D) are the last two swing points made in the direction of the trend before forming swing point A.

Rule of Thumb: Step back and look at the whole chart in a general way. The significant swing points WILL stand out. ft's not rocket science and should not be a stumbling block to learning to calculate Fibonacci price levels. The more you do this analysis the quicker you will be at picking up the swing points and calculating the price levels.

Fibonacci numbers

Fibonacci numbers can be used in numebous trading strategies. However, this is important to undertand what these Fibo numbers represent and learn more about the basics of the Fibonacci numbers.

Fibonacci numbers series and its unique properties was first written about by a mathematician named Leonardo de Pisa de Fibonacci (1170–1240). The series starts like this: 1—1—2—3—5—8—13—21—34—55—89 .. , … and goes on from there. Basically, the first two numbers are added to get the next number in the series. As you can see, this series goes on forever.

Fibonacci ratios

What is fascinating about Fibonaci numbers series is the ratio that is found when a number in the series is divided by the preceding number in the string e.g., 8/5 or 55/34). This ratio, no matter where you go in the summation series, is right around 1.618. Over the years, this Fibonacci ratio, 1.618, has been mentioned in writings, essays, and speeches by some of the greatest minds in science and mathematics. Why? Because it is found in the structure of a universal assortment of phenomena in the physical world. This includes nature, architecture, geometry, music, our DNA, and most relevant to us … the financial market.

What Fibonacci ratios are used in trading?

In technical analysis this is possible to use Fibonacci to find important support and resistance levels. But what Fibonacci numbers are used in specific calculations to make these kinds of projections? What are the best Fibonacci numbers to use? Here they are:

The basic Fibonacci ratios are 1.618 and .618.

Besides these two numbers, other derivative ratios that can be used in trading are:

.382 = .618 squared. Also, the ratio between alternate numbers in the Fibonacci sequence is 2.618 or its inverse, 0.382 .500 = divide the 2nd number by the 3rd in the Fibonacci sequence.

.786 = square root of .618

1.000 = 1.618 x .618 (also used simply for symmetry measurements)

1.272 = square root of 1.618

2.618 = 1.618 squared

There are certain specific ways and trading strategies in which these ratios are used. The important point here is to know which ratios are used and how they are derived. But now at least you should have a basic understanding of the background of Fibonacci and the ratios used in trading. If you are interested in furthering your education in the history of the Golden Mean or Fibonacci, all you need is a computer and Internet connection. There are thousands of articles and materials on the subject. Have fun!