Fibonacci tools are my favorite. They work on every time frame, also on the short ones like 1m, 5m or 15m. You can use them in different ways when you scalp:
- trade standard ABCD patterns
- trade between B and C
I show it on examples so it should be more clear.
First, some basics. We have retracement and extension lines:
You want to add some confirmation tools like averages, MACD or other. Basically, if you trade ABCD you look for trade in trend direction. When you have confirmation of trend, you place trade (based on signal) near retracement lines. In the example below we looked for short trade, entry would be between B and C, exit at one of extension lines:
- open a trade near reatracement based on signal from Stochastic
- close a trade at extension. You do not wait for signal, you simply decide to close at 138.2 or 161.8 extension (or other).
Like in this example:
Try to join Fibonacci with Pivot points. This will give you more information about potential support and resistance lines. You look for places when Fibonacci lines are near to the Pivot lines. Like below. Normally you would try to exit at 161.8 extension and for moment price stopped here. There was a continuation of that move and you could see that 200% extension is near to the pivot line. This would be a good exit point for a short trade (our D would be at 200):
ABCD is a one way to trade Fibonacci’s. Another popular approach is to trade between B and C. Idea here is that you have better chances to take profit when you open a trade near a retracement and close at B. You do not know if the price can go to the extension, B is very often a resistance for a price.
You can see what I mean on the chart below. 38.2 was a resistance for EUR/USD. From that, we saw a move down. There was a false break below B but the price turned up. It did not hit any extension. If you managed to go short near C and close at B you would be profitable.
It is a common picture that price reacts near B and C and many traders use that to trade between them.
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