Fibonacci Day Trader

Strategy Intent

Trading Criteria Details
Market Suitability Bull market when volatility is at its higheest
Difficulty Intermediate
Strategy Type Structure Trading
Take Profit
DCA
Positive DCA
Pending Orders
Trailing Stop Loss
Published
Demo Server

Note:

  1. Click the cloud icon to view the demo server for this strategy;
  2. Note if the cloud icon is showing in red it means the demo server is not available right now;

Strategy Overview

  • This strategy uses the 38.2% and the 61.8% (aka Golden Ratio or Golden Mean) Fibonacci retracement levels.
  • It creates the equivalent of a Fibonacci Fan by forming Fibonacci channels stretching from an origin point (the trade entry).
  • Background
    • In Mathematics, the Fibonacci numbers are: 0 , 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, … each number is the sum of the previous 2 numbers. If you divide one number by the previous number, you get 1.618, also known as the Golden Ratio.
    • The man who is credited with discovering this number sequence is Leonardo Fibonacci. His real name was Leonardo Pisano Bogollo, and he lived between 1170 and 1250 in Italy. “Fibonacci” was actually his nickname, which roughly means “Son of Bonacci”, some historian in the 1800's used his nickname and ever since he has been known as Fibonacci. He was allegedly trying to work out how many rabbits he could breed when he found the sequence. The real truth is this number sequence had been discovered in India centuries before he discovered this.
  • Use in Trading Financial Markets
    • In any case the Fibonacci sequence has been widely adopted in the financial markets and trading community.
    • To use Fibonacci numbers for trading we want to think of these as retracement levels, so to do that the Fibonacci levels we are using are not numbers that form naturally in the sequence. Instead they are derivatives of the Fibonacci sequence. We derive these from the calculation of two numbers. i.e. 13/34 = .382 and 55/89 = .6179 or .618 (The Golden Ratio).
    • One thing you will notice with financial charting software Retracement Tools is they also include .500, even though 50% is not one of the ratios as well as 0% and 100%. The 0% and 100% represent the low and high used to create the retracement levels. The levels are calculated in relation to the vertical distance between high and low. The 50% ratio has nothing to do with Fibonacci, it is based on Dow Theory which says a trend has a good chance of continuing once there has been a 50% retracement.
    • The theory behind Fibonacci retracement levels is that if a stock has fallen and bounces back up, you’d see resistance at the Fibonacci levels above the low. Likewise if a stock has shot up over a period of time and starts to pull back, there will be support at the Fibonacci levels below the high.
    • The market generally respects the fibonacci sequence price levels however there are no guarantees they will and there are times when the market will totally ignore the resistance lines and the price will push higher than expected.
  • How we will use it for this strategy
    • Whilst ProfitTrailer does not have direct support for Fibonacci levels we can easily simulate this.
    • To do this we make use of indicators, strategy labels and the EMACROSS strategy to create the equivalent of a Fibonacci Fan by forming Fibonacci channels stretching from an origin point (our trade entry).
    • If you plot this on a chart using 4 Exponential Moving Average lines you will see they form channels of support where the price will bounce up off and resistance where the price will bounce down off.
    • We use .618 as support and .382 as the main resistance points we are interested in.
    • What does this look like, well below is a typical trade made using this strategy and it shows the Fibonacci Fan. Now remember, we are buying into an uptrend and where you enter that uptrend may be well after the start of the uptrend so actual results will vary:

  • Why do we want to do this?
    • We are looking for high probability trades, that is trades that have a higher probability of turning into winning trades. Previous support and resistance levels make for good trade entry and exit points respectively.
    • Given we know that a lot of traders in the market make use of the Fibonacci Retracement tool in their chosen charting software, they too will be looking to enter and exit on these Fibonacci levels. Some traders also use the Fibonacci Retracement tool to determine their stop losses. This means there is a good chance of some high volatility around those price levels.
    • Now lets look at that example trade again using the Fibonacci Retracement tool in TradingView and you will see the volatility around the Fibonacci levels in this case primarily around .382:


    • In the example above you can see the price jumps up at the start of the trade to the .5 level and then it hits resistance at the .382 level. It then breaks through the resistance and .382 now becomes a support level until it hits our first fan line (red) when it then bounces up again through the .236 line and up towards the 0%.
    • The bears then take control and it drops down to our second fan line (green) at the .382 level which we now know is a support line so the chances are that it is likely to bounce up from here which it does and follows our fan line along for some time.
    • Then the bears take control again and the support breaks at which point the price hits our third fan line (orange) and we exit the trade.
    • The price then continues down breaking through to our fourth fan line (yellow) and bounces up again briefly before breaking through the yellow line and finding support at the 50% mark. At this point it bounces back up and presents us with another trade opportunity. Can you see how this works now?
    • There are no guarantees that price will bounce from those levels but the likelihood is high they will given the other traders interest around them.
    • Remember that trading is all about probabilities, so anything you can do to increase the likelihood of taking higher probability trades will increase your chances of coming out ahead in the long run.

Entry Criteria

  • First, we need to choose the uptrend that will serve as the basis of our Fibonacci projections. We use the golden ratio of .618 for this purpose, it forms our main trend line.
  • We then use the .382 to identify our entry condition.
  • Our entry forms our origin point for the Fibonacci Fan.
  • Trailing is turned off to ensure we buy into the uptrend as soon as possible.

Trade Management

  • The strategy applies the 2% and 10% rules of trading.
  • Position size is limited to 2% of risk capital per trade.
  • Only 5 trading pairs are active at any time to ensure no more than 10% of total risk capital is employed in trading at any time.
  • A trailing stop loss is employed rather than a fixed stop loss.
  • Take profit is employed to prevent loss of profits.

Exit Criteria

  • We want to follow a trading pair along its journey in an upward trend along the golden ratio. By doing so we can catch long intraday uptrends.
  • We then look for the retracement on the .382 to identify our exit from the trade providing our GAIN target has been met if not we let it hit support at .618 and bounce up again.
  • We use Pending Orders to catch any trading pair that breaks support at .618 and continues to fail and goes below -10%.
  • Our profit targets are set higher to reflect these longer upward trends with max profit set to 20% and take profit set to 10% and we use positive DCA at 5% to help push profits higher.

Strategy Tips

  • This strategy relies on having strong upward trends and therefore works best in a Bull market but will work in all market conditions albeit much slower.
  • The key to this strategy is patience as it depends on the market conditions prevalent at the time as we are looking for strong uptrends, Bear and sideways markets will be slow due to low volatility.
  • Apart from patience you will need the ability to hold your nerve, these trades rely on strong upward trends and will take longer than you may be used too to complete the buying and selling for the trade.
  • Also it can get tempting to sell a trading pair that has a high profit percentage but you need to have patience and hold on and wait for it to complete the trade.
  • One aspect you may want to change is the timeframes I have tested this on multiple timeframes, 5 min, 15 min and 30 min bearing in mind this is meant to be an intraday strategy. It works fine on all these timeframes albeit much slower at higher timeframes. Note it is already pretty slow at 5 min with trades potentially lasting all day. To adjust the timing just change the Indicators candle periods so 300 (5 mins) would become 900 (15 min) for example. You just need to make sure the exchange you are on supports timings here: Exchange Info Nothing else in settings needs to change.
  • Make sure you do not overextend yourself by getting your max trading pairs and initial cost right to suit your trading budget.
  • Use the dca_calculator we provide to work these values out covering at least 4 levels of DCA for all your pairs. Once you have those values enter them into this strategy. The dca_calculator also ensures you have a 50/50 split on your trading budget to ensure you have sufficient budget for the sell side of this strategy.


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  • fibdaytrader.txt
  • Last modified: 13 days ago
  • by cryptocoyn