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In this part you will learn:

• How to decide in which direction you should trade

And that’s it. But this is one of the most important things when it comes to trading with Fibonacci tools.

At the beginning, it might be hard for you to decide in which direction you should trade or even take a position at the moment. That is why I have prepared this template for Metatrader, which will help you make better decisions.

What can you see on the chart? Let’s go through this:

– A candlestick chart
– The 200 simple moving average
– The linear weighted moving averages from 5 to 154 periods long (the rainbow)
– Two Kijun-sen lines from Ichimoku (one is 26 periods long and and the other is 60 periods long)

It may look like there are a lot of things on the chart, but this is only to help you visualize what the current situation is. Go to the end of the guide to read how to install this template in detail.

Candlesticks and the 200 simple moving average should be familiar to you by now. Let’s discuss the other tools in detail.
The linear weighted moving averages from 5 to 154 periods are also called the rainbow. There are many types of the rainbow chart – sometimes they are built from averages ranging from 2 to 200 periods. In this case, we have averages from 5 to 154 sorted in three groups: blue, green and red. You look at them to find out what the current trend is and how strong it is. It is very simple. When the blue group is at the bottom, green in the middle and red at the top, then we probably have a strong downtrend.

8.1. Template based on Rainbow and Kijun-Sen lines.

When there is an opposite situation – blue at the top, green in the middle and red at the bottom there is probably a strong uptrend.
When these averages are mixed up, there is probably something wrong with the trend.

8.2 Mixed averages – this is no good place to look for a trade.

We use the rainbow to have another confirmation of the current trend. Of course, we could achieve a similar goal with a set of a few averages, but I like the look of the rainbow. It is very intuitive to use.

The Kijun-Sen lines

These are lines taken from the Ichimoku Kinko Hyo indicator. Actually, in Ichimoku there is only one Kijun-sen line, and a few other lines, but I’ve taken two Kijun-sen lines with different parameters. What is so great about these lines? The price respects them and if there is an uptrend, the price for sticks above them most of the time. If there is a downtrend, the price is below these lines most of the time.

8.3. Price above two Kijun-Sen lines.

How to use this template?

Basically you should search for a situation to take the long position when:

1. The price is above 200 SMA
2. The rainbow lines suggest an uptrend
3. The shorter Kijun-sen is above the longer Kijun-sen

8.4. Good situation to look for long trade.

In order to take the short position, you look for a situation when:

1. The price is below 200 SMA
2. The rainbow lines suggest a downtrend
3. The shorter Kijun-sen is below the longer Kijun-sen

8.5. Good situation to look for short trades.

Now you can draw the retracement lines and place the trade in the direction of the trend.
Of course, it is not always perfect, but in the situation described above you have the best chanceof success. Let’s have a look at two examples.

Below we can see a very strong uptrend on a 4-hour chart of Eur/Usd. It is a perfect situation to use the Fibonacci retracement and extension tools. The trend is strong, so it is very easy to find many ABCD setups. Below you can see one of them. Notice that you could draw more of those on that chart.

8.6. Clear ABCD formation and confirmation from averages about direction of trend.

Now let’s see what it lookslike in the downtrend. Notice that the moving averages suggest a downtrend. There is also a confirmation from the Kijun-Sen lines. We know that the safest option here is to look for an ABCD pattern for a short opportunity. After a strong correction, there is one great opportunity.

8.7. Clear ABCD formation and confirmation from averages.

You can spot the logic here. This template is only helps me to make sure that I am investing in the right direction. I find it very useful and I hope you can make use of it too.

PREVIOUS PART: PART 7. WHEN TO EXIT A TRADE
NEXT PART: PART 9. A FEW IMPORTANT THINGS YOU SHOULD KNOW

PART 1. INTRODUCTION
Basic information about Fibonacci numbers and why it is good to know how to use them.

PART 2. THE FIBONACCI RETRACEMENT LEVELS
How they are build and how to draw them to find possible leveles during correction.

PART 3. THE FIBONACCI PROJECTIONS
How to predict where is the best place to exit trade - Fibonacci Extension and Expansion will be helpful here.

PART 4. THE FIBONACCI CONVERGENCE
Learn what convergence is and how to spot it.

PART 5. WHEN TO ENTER A TRADE – A SAFE SCENARIO
Here we put knowledge into practice - you will learn a safe way of opening positions.

PART 6. WHEN TO ENTER – A RISKIER SCENARIO
Little bit riskier scenario of opening trades where possible profit is bigger.

PART 7. WHEN TO EXIT A TRADE
Closing trade is very important, but where is the best place? This should help you to find the best place to exit.

PART 8. MY TEMPLATE
Few examples of different templates you can use in Metatrader software.

PART 9. A FEW IMPORTANT THINGS YOU SHOULD KNOW
How to define trend, the importance of the higher time frame and how to trade the news with Fibonacci tools.

PART 10. FIBONACCI AND PIVOT POINTS
How to combine Fibonacci tools and pivot points.

PART 11. MONEY MANAGEMENT
Proper money management is very important - without it you will be loosing money fast.

PART 12. MORE EXAMPLES OF TRADES
More exapmles where we put together knowledge from guide.

13. THE “HOW-TO” ARTICLES