Break Out Strategy
There are many different ways you can enter a trade with Fibonacci tools. One of them Fibonacci Trading Break Out is most popular. The reason is simple – Breakout is very popular among some traders and market makers know that. Because of that, we can see many false breakouts, bull spears, bear traps during a breakout.
However, many times you want to breakout trade. If you do, then the best way to do this trade is to wait for a retest.
The main idea is to buy at the end of the correction and there is a breakout. We are looking for a place where at the right time and the best opportunity to enter the right direction. This place has recently been a break above the recent low level in the uptrend or at the breakdown.
1. Identify the main trend. You should know what is the main trend and in which direction you want to enter a trade.
2. Identify low-high / high-low swing. Find that swing, for which you will create retracements and extension lines.
3. Wait for the completion of improvement in Part C Let other traders play between retracement lines. Just be prepared and wait for the situation to enter.
4. Wait for a breakout above high swing A-B (to go swing) or swing A-B at least (for less to go).
5. Wait for the retest – usually, it will be a rating of B-point. Switch to the following time-frame so that you can log on to the review. For example, if you trade on a 1h time frame, then go 5 m or 15 m and look for a rating here.
7. Open a trade.
8. Wait till the price hit the expansion line and turn off the trade at point D
Advantage of Fibonacci levels
There is a big difference between a Fibonacci trader and a simple trader. The latter is not certain that when it should close the trade opened after a breakout. He has opened the situation at the right time (on the breakout), but there is no clue to close it. He has some exit signs, but he is usually late with his exit decision.
A Fibonacci Trader is able to get most of a move from the moment of breakout. With the Fibonacci expansion tool, he can get out on many occasions, at the end of the move (this is not the goal of this Fibonacci trading strategy, but it will be many times with you).
Your exit point will be on one of the extension lines. Your goal is to catch most of the move between 100% and the extension line, so between 100% and 127% or 138.2% or 8.8%.
Fibonacci Trading Break Out and retest
Here you can see a support line that worked for some time. After all, the price managed to close down (we had a breakout). Now, this is an important moment. Is this a wrong breakout or is this a moment when support has turned into resistance?
That’s why we wait for a retest. When there is retaliation and we see that old support now acts as a resistance (we see that on the basis of value action), then it is a good place to open a trade with tight stop loss.
Remember, sometimes the retest will appear on a short time frame and the reason finds out to a good idea to enter.
Where to place the stop loss in Fibonacci Trading Break Out
In this scenario, you do not keep your stop loss very far from the entry point. You believe that a break above the last peak should lead to a strong move. If, after a while, the price has failed to move forward and comes back to the retracement level, then maybe there is something wrong with trend strength (at least that time). You do not want to wait and see that 38.2% or 61.8% will hold in support because the price was already and you have a position on the last peak! In this case, what you want to do is stop the situation as soon as something goes wrong.
When the price drops below 23.6% retracement level, close your trade. Of course, do this with stop-loss orders – do not wait and hope for the best.
Stop the loss of only 23.6% is my recommendation, but feel free to change it. Maybe you want to get a tight off? Then try to set your stop loss order behind the 14.6% retracement line (this is also a retirement level, but I have hidden it on my chart).
Wait for candle closure
If you look at the 1-hour chart, each candle closes after 1 hour and there is another candle on the chart.
This is a very common mistake – Traders try to catch the trick and they open a trade that does not wait for the candle closure. As a result, the bullish candle is closed as a shooting star because the Fibo level worked as resistance.