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Fibonacci Strategy for short term trading (Basics)

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Fibonacci retracement levels

The Fibonacci retracement tool can be successfully implemented in your daily trading if you know how to use it.

I would recommend practicing this strategy at a reliable broker which offers short term trading options.

Learn Fibonacci basics and how to draw Fib lines. Check out my trading examples on EUR/USD and find out how to execute more successful Call/Put trades using the price trends.

Fibonacci Basics

The name comes from the famous Italian mathematician Leonardo Fibonacci who developed a sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233…

21 + 34 = 55; 55 + 89 = 144

Meaning that each next number is equal to the sum of the previous two.

The Fibonacci retracement is calculated by dividing the higher numbers in the sequence:
55/89 = 61.797%, 89/144 = 61.805%

In trading the Fibonacci retracement is simply a drawing tool which separates the chart in the following levels: 23.6%, 38.2%, 50,0% and 61.8%.

The key level to be monitored on your chart is 61.8%.

Essence of the strategy

The idea is to locate a trend on the chart (up or down) and pullback (retracement) after which the trend will continue in the same direction. You have to enter the market at the pullback with a Call or a Put option depending on the trend Up or Down.

You need to draw the Fibonacci lines in the direction of the move in order to locate the retracement – the point where you trade.

In an uptrend you draw the Fib lines form the Lowest to Highest point of the trend and the opposite way for a downtrend.

When you are using the Fib tool your aim is to define at which level the price action will stall. Ideally the retracements will start on the 50.0% Fib level or even better on the 61.8% level.

Examples

In the following examples I am trading EUR/USD in short term options: 5 minutes.

Uptrend

fibonacci StrategyUP

You see a clear uptrend where I am drawing the Fib lines from Low to High.

100,0% level is on Low where EUR/USD price is near 1,35160

There is a small pullback on the 61.8 level which can be entered with a Call option after which follows a confirmation at the 50.0 where I started to buy Call options. The price move dropped first to the 61.8 level then to 50.0 and continued its move in the direction of the trend.

Downtrend

fibonacci StrategyDown

100,0% level is on High where EUR/USD price is near 1,35940

You can see on the chart there are two pullbacks on the 50.0 level. I took the second one as a confirmation for a retracement after which the trend made a strong move to the downside. In such a case when you have a confirmation you can continue buying Put options on the pair.

To be successful on this strategy

- Trade highly volatile markets such as Forex
- Get some experience with the Fib tool so that you are able to find the 61.8% level just by eyeing it
- Set up your chart time frames according to the expiries that you trade
- Start to practice on a demo account

These are the basics of Fibonacci retracements so you can expect more articles to come on this subject. I hope this strategy will be useful for your binary trades and should you have any questions feel free to contact me in our forum.