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#202: Do You Struggle to Understand Fibonacci Levels

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Do You Struggle to Understand Fibonacci Levels

In this video:
00:23 – Difficulties with trading using Fibonacci levels – plus the US Election
00:56 – People struggle with using Fib levels in real time
02:11 – Big traders and banks use Fibonacci levels
02:45 – Fibs give me a great retracement entry
04:15 – No guessing with my entry and exit levels
05:05 – Drawdowns are kept to a minimum
05:54 – The US Election – Hilary or Don, who will win?

Do you have a problem understanding Fibonacci levels? If you do, listen up. I've got some great information and of course, news about the upcoming U.S. election, so let's get into it.

Hi Forex traders, its Andrew Mitchem here, the owner of The Forex Trading Coach.

Difficulties with trading using Fibonacci levels – plus the US Election

In today's video and podcast which is number 202, I want to talk about difficulties about trading with Fibonacci levels and of course, next week, we have the long anticipated and really, at this stage, who knows what the outcome's going to be, the U.S. election, so let's talk about the trading side of things first, and Fibonacci levels.

People struggle with using Fib levels in real time

Last week I said at the end of the video and podcast, “Drop me an email with questions that you have about your trading,” and an overwhelming majority of people, a huge number of people, wrote and said, “Andrew, can you help us with understanding Fib levels, Fibonacci levels?”

I'm not going to explain the whole “what are the Fib's, how are they calculated?” You can find that all online elsewhere, but the big problem that I found years ago when I started trading with Fibs is that they work beautifully in hindsight, a little bit like Elliott waves, if you have tried Elliott waves. You can see them all plotted on your charts, extensions and retracements and waves, et cetera, whichever you traded, Fib levels or Elliott wave, and you can see it all in hindsight because you know exactly where to draw your levels from and to and in hindsight, absolutely wonderful, but the problem that I found, anyway, is that in real time, I just didn't know where I was drawing levels.

Am I at a swing high now or maybe at a couple bars later I might be at a new swing high, so therefore my levels are wrong, and to me it was an absolutely nightmare. I found it real difficult. Although I like the concept, in reality and trading from the right hand side of the chart, making the decision right now as the market's moving up and down, I found it virtually impossible to trade either of those 2 principles.

Big traders and banks use Fibonacci levels

But, as you know, if you've been trading for a long period of time, a huge number of technical traders in big institutions, big banks, et cetera, they use Fibonacci levels, so I was determined to try and find a better way of trading that suited me using Fib levels all those years ago, and today when I found something that worked, I still trade exactly the same way today, and that's exactly how I help and teach my coaching clients using the way that I have discovered and found Fibonacci levels worked for me.

Fibs give me a great retracement entry

What I love about Fib levels, the way that I use them, is that they give me a fantastic retracement entry, so it means I'm buying below the current price or selling above the current price, so I'm using limit orders, buy limits or sell limits. What that does is if the price retraces to my entry level, it gives me a far greater reward to risk on my trade, rather than just jumping in straight away on the close of the candle at the market, I'm waiting … Let's say I'm buying. Rather than jumping in up here, I'm waiting for the price to retrace to a set level using my Fibonacci levels. If the price retraces there, the market automatically fills my trade. I'm not sitting there waiting for that price to happen. It fills me at that level, so it gets me in at a better price, and then at that point, if I'm buying, I'm anticipating that after the markets pull back, it's then going to turn around fairly shortly after I've taken that trade and then start heading up again.

It means that I can have relatively small stop losses and because I've got it at a better price than I would've straight away at the market, it means that my reward to risk becomes better which means that I don't actually need to have a win rate quite so good because my reward to risk is good, so I use the Fibonacci levels and certain levels that all are covered in great detail in my coaching course that I teach to my clients and I explain every day on my daily trading suggestions, so I'm using a Fib level for an entry, I'm using it for a stop loss and I'm using it in an extension for my profit target.

No guessing with my entry and exit levels

There's no guessing involved, then, when it comes to setting those important levels. I know my profit target is going to be at this certain extension level on all of my trades, so I'm not thinking, “Where do I put my profit target and should it be here or should it be there or I'm not quite sure.” None of that comes into it. I have set levels that are real simple and easy to place and to understand, and it is absolutely remarkable, absolutely remarkable, how often the price respects those levels that I use. It just blows me away, and of course it doesn't happen on all trades. It would be silly to say it's going to happen on all trades. It does not, but it's a huge number of trades where you see the price will retrace, it will get you in and then it will turn around not long after, either right on that point or not long after.

Drawdowns are kept to a minimum

Another great thing is your drawdowns are kept very, very small on most trades because it's remarkable how often the price does retrace once the trade gets filled, and another benefit is it can be used across all this principle that I use and trade can be used across any time frame charts. Personally I use it on the four hour charts and higher, the slightly longer time frame charts and across any currency pairs, so it really is a very simple, highly effective way of using Fibonacci levels to benefit your trading. If you'd like to know more about that, just get in touch with me and really the only true way of using that information is to jump on to my course. If you would like to know more, send me an email and I can details through to you.

The US Election – Hilary or Don, who will win?

Number 2 topic for today, of course it's the good old U.S. election next week. Really it's 50/50 right now who's going to win, whether it's Hillary or whether it's Don. Who knows which way it's going to be. It's going to be quite interesting, a lot of brokers, of course are just giving you a bit of a warning to say just be careful with your trading. They're going to sort of have a few restrictions on most trading accounts over the next couple of days, so don't be in a hurry to sort of have too many positions open on your account probably Tuesday, Wednesday, even Thursday of next week. Just be real cautious with that news event. Because it is so close it might be one of those events, as a trader, you just sit out of the market, let the market do its thing. Yes, you could make a lot of money or you could lose a lot of money. It's a bit like the Brexit thing. You've got to be real careful when you're trading those massive news announcements.

The easiest answer for most people, when the logical answer, sensible answer, may be just to give trading a break for a few days or just be real careful and watch those trades if you have any open at that time. By this time next week we'll know whether it's Hillary or whether it's Don who's in charge.

Look forward to talking about that and more this time next week. Have a great weekend. This is Andrew Mitchem, The Forex Trading Coach.

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  • jiggerdigger

    I take my hat off to anyone who has a grasp of Elliott Wave Theory. My attempts to get to grips with it have invariably led to me shutting myself away in a darkened room to recover from the trauma. Having said that, my efforts have not been entirely in vain. I have devised my own way of wave counting incorporating the 3 main rules of EWT and the 3 basic corrective wave patterns (I know there are 21 but they’re all just derivatives of the main 3) which, when used to complement my own strategy – for additional confluence if you will – seems to work quite well. Same with Fibs; I use them for extra confluence. As for the US Election, no doubt Clinton will win (with or without FBI investigations). Just one caveat though. It’s the opinion of a Brit who predicted a comfortable ‘Remain’ vote in the Brexit Referendum!! Finally, thanks Andrew for your efforts. I always enjoy reading your words of wisdom…