Fibonacci Trading Strategy for Binary Options

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The Fibonacci Fans binary options trading strategy discussed here aims to spot opportunities to initiate Call or Put trades using and indicator that draws specialized lines that spread out like a fan when applied on a chart. These lines are not drawn randomly by the indicator, but are drawn based on specific calculated areas known as the Fibonacci numbers. To understand the strategy, we need to understand the indicator for this strategy.

Fibonacci Fans are also called Fibonacci Projections. The tool in question is found under the Fibonacci group of indicators. These are indicators that identify potential price retracement or reversal areas based on the Fibonacci numbers. These numbers are located at retracement levels that are at 23.6%, 38.2%, 50%, 61.8%. 78.6% and 100%.

The Fibonacci Fan Tool

The Fibonacci Fan tool is used to catch retracement entry points within the contect of a trend. The fan lines resemble a hand-held fan which has been spread out, hence the name. The fan lines may either point upwards or downwards and the direction of the fan lines is a reflection of trend.

Chart Setup
In order to trade this strategy, the chart setup should be performed as follows:

  • MetaTrader 4 Indicators: The MT4 tools used for this trade are the Fibonacci Fans tool and the Stochastics oscillator, set to 10,3,3.
  • The time frame chart used in setting up this trade must be at least 4 hours. This is because long term charts are a better reflection of the trend than short term charts which are mostly market noise.

Indicator Settings
To activate the Fibonacci fan tool and use it to perform the chart trace, click on the Insert tab on the top navigation menu. Then select Fibonacci, and then the Fans tool. You can modify the properties of the indicator as you wish, while retaining the original Fibonacci fan line settings.

The strategy is to locate a retracement from a major trend, and then to seek out areas where price action will continue in the direction of the original trend. The Fibonacci fan lines mark out the areas where the price retracements will come to an end.

Since there are 5 of such areas, how does the trader determine the exact one where this will happen? Another tool is introduced and this is the Stochastics oscillator. This indicator can detect overbought and oversold market conditions. When the lines of the Stochastics indicator cross at overbought or oversold levels when price is at a Fibonacci fan line, this is the definition of the area where retracement will end for continued price movement to occur. The trader can then decide to enter a Call option (oversold) or a Put option (overbought).

Rules for Choosing a Call Option

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A Call option trade aims to capture the renewed upside move following a retracement of price action from an uptrend. Therefore, a trade entry for a Call option should be made when the following setup occurs:

a) Trace the Fibonacci fan tool from a swing low point (lowest price point on the chart) to a swing high (highest price point) on the chart. This traces the fan lines on the chart.

b) From an initial uptrend, the price retraces to a Fibonacci fan line. The price action candle in question must touch a fan line without the candle closing below that fan line.

c) The Stochastics oscillator lines cross at levels at nd candle.

For this chart, the time frame is 4 hours, therefore the trade exit should be set to 8 hours.

Rules for Choosing a Put Option

A Put option trade aims to capture the renewed downside move following a retracement of price action from a downtrend. Therefore, a trade entry for a Put option should be made when the following setup occurs:

  1. Trace the Fibonacci fan tool from a swing high (highest price point on the chart) to a swing low (lowest price point) on the chart. This traces the fan lines on the chart.
  2. From an initial downtrend, the price retraces upwards to a Fibonacci fan line. The price action candle in question must touch a fan line without the candle closing above that fan line.
  3. The Stochastics oscillator lines cross at levels at >75, which is classified as overbought when price is at a fan line.
  4. At the fan line in question, wait for the next candle to open and attempt to pull back up to the fan line in question. Once it touches the fan line, go to your binary options platform and purchase a PUT option.

The setup for the Put option is displayed on the chart below.

In this example, we can see that the retracement from the downtrend was to the 78.6% line, and since this was where the Stochastics was overbought, the Put trade is valid at this point.

Trade Expiry

For the daily chart, the trader has the option of selecting one or two candle lengths in determining the trade expiry. This is equivalent to an End-of-Day expiry.

Disclaimer: “Your capital may be at risk. This material is not investment advice.”

Fibonacci Trading Strategies: A Practical Example for Use in Forex

Fibonacci is one of the most widely respected mathematicians in history. His descriptions and practical applications of the Golden Ratio remain with us today and are the very basis of many different forms of technical analysis. It only makes sense, right? The Golden Ratio describes the relationships between living things, and the market is just that: a living beast, a mob. For a person, arm span is relative to height is relative to leg length, and so on in a manner that is time and time again seen.

The most common use of Fibonacci in technical analysis is the Fibonacci Retracement. This is a drawing tool used to measure and divide up and down trends. The basic principle is this: within a trend there will be corrections, and those corrections can be categorized by their depth in relation to the overall trend. For example, a trend from point A to point B is measured with the Fibonacci Tool. The tool projects target levels within that trend based on the Golden Ratio. These targets are where traders may expect to find potential entry points for trades. Below you will find two key principles to keep in mind when using Fibonacci.

  • Key Principle – Fibonacci Retracement levels are not signals — they are price targets where signals may be found. A move to a retracement level may result in continuation or reversal depending on underlying conditions.
  • Key Principle – Fibonacci Retracement are not exact targets, but rather they are general areas in which a signal may be found or an area in which signals could be considered to be “significant.” A bullish candle may mean completely different things if it forms below, at or above a retracement level.

Let’s take a look at an example of this strategy. At this moment, the AUD/USD is presenting a perfect opportunity to use this tool. The pair has hit what may or may not be “the bottom,” but that doesn’t matter so long as it is “a” bottom the Fibonacci Tool can help us figure it out. To begin, use the tool to draw a line from the highest high preceding the recent down trend to the most recent low, as that is the trend we are measuring. In the chart below, you can see that this results in 5 retracements; 23.6%, 38.2%, 50%, 61.8% and 100% of the measured trend.

Now that prices are bouncing/consolidating, we can use the retracement lines as targets for entry and exit points.

Here are a couple of possible scenarios:

  1. If the prevailing down trend is strong, prices are likely to remain low and at/near the 0% retracement line. If this is happening, look for signals to occur at this line. If it continues to act as support and a bullish signal is generated by candles and/or stochastic, MACD or RSI playing calls is the best thing to do. If bearish signals begin to develop and/or the 0% retracement line is broken the down trend is likely to continue. Use the 0% in this case as a starting point for bearish trades when confirmed by other signals.
  2. If a correction is able to form, prices are likely to move up to test the first line, the 23.6% retracement level. If this happens use this line as your resistance target. If price action begins to form bearish signals below, at or slightly above this line, you can expect to see it move lower to retest the 0% level. If price action is able to move above the line or is making bullish signals at or just below it, you can expect to see a move to the next higher retracement.
  3. If price is able to move above the 23.6% line, we can expect to see it move up to the next higher retracement, the 38.2% level. Likewise, a break of the 38.2% level would indicate a move to the 50%. If bearish signals were to occur at or near either of these lines a retest of the previously broken line should be expected.
  4. The 50% level is a very important one. In general, even the strongest corrections are halted at this level. A break above it is an indication of full reversal and automatically brings the 100% level into play. At that point traders would look for bullish signals of confirmation along the 50% line.
  5. If the correction meets resistance at one of these retracement levels, we can expect to see the previously broken line retested as support. Bullish action would confirm the support and result in a bounce, a break below would likely take prices down to the next lower retracement.

Ready to incorporate Fibonacci tools into your trading strategy? Hopefully this article provided helpful pointers for you to try it out. Don’t forget you can always use your demo account to get acquainted with new tools and features. Fibonacci is just one of the many tactics out there to help you reach your trading potential.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
In accordance with European Securities and Markets Authority’s (ESMA) requirements, binary and digital options trading is only available to clients categorized as professional clients.


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Fibonacci Intraday Forex Trading System

Market: Forex.
: 5 WMA (weighted average moving average (volumes are used to calculate it), Fibonacci levels;
Time periods
: M5-H1;
Forex pairs
: various;
Strategy: intraday;
Protective order: Stoploss.

Intraday Trading Strategies usually carried out in short time ranges (5 minutes, 15 minutes, 30 minutes and even 1 hour). And the risk of loss on intraday trading always higher than when working on large time ranges.

Therefore, it is very important to have a good intraday trading strategy, which can advise entry with a greater chance of success, and more importantly, it should be able to say exactly when to exit a position without constantly monitoring the price by the trader. We also note that the more traders look at the price chart, the more they experience a sense of doubt about the luck of their current open position. So, we present to your attention just such intraday trading strategy at the Fibonacci levels.

Fibonacci Intraday Trading Strategy Algorithm

Look at price waves. Find the most recent high and low waves – the so-called Fibonacci A and B points. Pull the Fibonacci from point A to point B. To know which direction to pull (up or down), just look at the trend, if it is not clear, then simply find the corresponding AB points and stretch the Fibonacci in both directions.

As soon as the preparations are finished, we look and wait for the price to behave further. In order to enter the trade, three conditions must be met:
1) The price should concern 5WMA;
2) The price should touch the level of 0,382 (resistance level);
3) The level of 0,618 should not be broken. This means that the price should not close lower (for an uptrend) / higher (for a downtrend) resistance level 0,618. The price may touch and even pierce it, but the level must withstand the “attack”.

When all three criteria meet, we enter as soon as the candle closes above 5 WMA for purchasesbelow for sale.

Stop order always set 4-5 pips above the (descending) / lower (for the ascending) resistance level of 0,618. We set the profit at 1,618 Fibonacci stretched from point A.

Ivan Borisov

A person who knows everything about forex trading strategies! Since 2008, he has been offering us various options and opportunities for trading on the Forex currency market: authoring techniques and popular strategies from the Internet.

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