Use Fibonacci automated trading to profit from trends – News Couple
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Use Fibonacci automated trading to profit from trends


Perhaps the best thing about trading the futures markets is the ability of participants to take advantage of trends. Strong moves in price offer beneficial risk versus reward ratios and provide an opportunity for extraordinary profits. One of the ways that active traders seek to make profits via trend trading strategies is through automated Fibonacci trading.

In this article, we will take a closer look at Fibonacci technical analysis and how to use the Fibonacci retracement to enter a trade.

View Fibonacci retracement from a market perspective

Adopted in Leonardo of Pisa in the late 12th century, the Fibonacci sequence is a mathematical formula with limitless applications. It consists of the following sequence of numbers: 0, 1, 1, 2, 3, 5, 8, 13, 21, to infinity. The pattern is simple, as each number in the sequence is the sum of the previous two integers.

The most closely related is the golden ratio (1.618033), which represents the proportionality of a Fibonacci number to another number. Accordingly, the trading of the Fibonacci sequence includes various technical tools, including Fibonacci retracements, extensions, and extensions.

So what are Fibonacci retracements? Simply put, it is a set of measurements derived from the golden ratio that can be used to put price action into a controllable context. This is achieved by measuring the distance from a periodic rise to a low and then applying the specified correction ratios to the total value. Calculations are usually done automatically via a simple bounce calculator.

Here are the ratios included in a standard set of automated Fibonacci trading retracements:

In addition to these values, traders often add 50 percent and 78.6 percent retracements to their accounts. Although not technically part of the golden ratio, the 78.6 percent and 50 percent Fibonacci levels come standard among the functions of the best Fibonacci trading software suites.

Live Fibonacci trading: Understand how to apply retracements to trending markets

Trend trading is a strategy that aims to lock in profit from the momentum that is driving a directional movement in price. To be a successful trend trader, you must be able to do two things:

  1. Determine trends in time.
  2. Determine the ideal market entry and exit points.

Of course, these two tasks are much easier said than done. However, there is good news: using Fibonacci in trading and applying automated Fibonacci trading tools can make every job considerably easier.

For example, a trend can be considered active or terminated when the following characteristics are displayed in conjunction with retracement levels:

  • Energetic: The market is seen as trending when pullback from directional price action (peak to trough or vice versa) fails to extend above or below the 38.2% Fibonacci retracement or 61.8% retracement levels. In a similar vein, the Fibonacci 50 retracement rule states that the security price returns between 50 percent and 67 percent before resuming the broader uptrend.
  • is over: In the event that the price breaks through the 61.8% retracement level, the dominant trend is considered to have ended. The market is then primed to enter either a spinning phase or a direct reversal. Once again, the correct assessment of price action in relation to each retracement level is the key to successful financial Fibonacci analysis.

Here are some of the ways Fibonacci price action is commonly viewed when trading golden ratio levels in trending markets:

  • Market Entrance: Getting into trend can be a challenge. In many cases, traders arrive too late and end up buying a cyclical market top or selling a medium-term bottom. However, by entering a trend after a pullback has occurred, you can improve your trading position. The common values ​​that traders use for this market entry technique are 38.2% and 61.8%.
  • Risk Management: Since retracements are seen as potential areas of support and resistance, they are useful for placing stop-loss orders. Closing an open position once the trend has proven exhausted is a good way to avoid losses due to a market reversal.
  • Counter-Directional Strategies: In the event that the trend is considered to have ended, an opposite position may be taken. This type of approach is especially valuable in reversal and rotation strategies.

The beauty of Fibonacci tools is that they can be easily applied in live market conditions. Most software trading platforms offer automated Fibonacci trading indicators that feature a drag-and-drop functionality.

However, there is a word of caution: Leveraging the power of free Fibonacci trading software involves judgment. The exact calculations depend on the appropriate time frame, number of waves and ideal peak bottom values ​​being chosen. Ultimately, learning how to properly apply Fibonacci technical analysis requires time, experience, and additional education.

Getting started with Fibonacci automated trading

Although Fibonacci retracements are powerful analytical tools, they are not the only technical tool out there. Like most other indicators or studies, redemptions are best used within the framework of a comprehensive trading plan.

For information on Fibonacci tools and more, download our free eBook Basic training for futures traders. You’ll find tips on the basics of futures trading from industry professionals and active traders and learn techniques to become a disciplined trader.

This blog was originally published on March 18, 2019 and has been updated for accuracy and comprehensiveness.





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