Forex Fibonacci Retracement Trade

Entry Logic

• Entry triggers on a bounce from a key Fibonacci retracement level (38.2%, 50%, or 61.8%).
• Confirmation requires a reversal candle (e.g., hammer, shooting star) on the 1-hour chart.
• Timeframe is the 1-hour chart.
• Location is a pullback to a Fibonacci level in a trending market.
• Market condition must be a trending market.

Exit Logic

• Profit target is the previous swing high/low.
• Scale out 50% of the position at a 1:1 risk-reward ratio.
• Trailing stop is a 30-pip trailing stop.
• Exit on signal failure if the price closes beyond the 78.6% Fibonacci level.
• Exit on an opposite signal from a strong reversal at a key resistance/support level.
• Exit on time expiration after 24 hours.
• Exit on momentum loss if the price fails to move for 4 hours.

Stop Loss Structure

• Hard stop is placed 20 pips beyond the 61.8% Fibonacci level.
• No soft stop is used.
• Maximum dollar loss is 1.5% of account equity.
• Maximum percent loss is 1.5% of account equity.
• Structural stop is placed beyond the previous swing low/high.

Risk Management Framework

• Risk per trade is 0.75% of the account.
• Maximum daily loss limit is 2.25% of the account.
• Maximum weekly loss limit is 6% of the account.
• Maximum drawdown allowed is 18%.
• Risk-reward ratio requirement is a minimum of 1:1.5.

Position Sizing Model

• Sizing is based on a fixed fractional model (0.75% of account per trade).
• No volatility adjustment is used.
• Conviction sizing is not used.
• No scaling in.
• Scale out 50% at the first target.

Trade Filtering

• Avoid trading in ranging markets.
• Requires a clear trend on the 4-hour chart.
• Instrument can be any major forex pair.
• Can be traded at any time.
• Avoid trading when the Fibonacci levels are not clear.

Context Framework

• Trend direction is determined by the 4-hour chart.
• Price should be on the correct side of the 200 EMA on the 4-hour chart.
• Price should be making higher highs and higher lows in an uptrend, or lower highs and lower lows in a downtrend.
• Location is a pullback to a Fibonacci level.
• Higher timeframe (daily) should be in a clear trend.

Trade Management Rules

• Move stop to breakeven after the first profit target is hit.
• Scale out at the first profit target.
• Do not add to the position.
• Be patient and let the trade develop.

Time Rules

• Optimal trading window is during the London and New York sessions.
• Avoid trading during the Asian session due to lower volatility.
• The strategy can be applied to any session with sufficient volatility.

Setup Classification

• A+ setup: Bounce from the 61.8% Fibonacci level in a strong trend with a clear reversal candle.
• A setup: Bounce from the 50% Fibonacci level.
• B setup: Bounce from the 38.2% Fibonacci level.
• C setup: Trading against the trend.

Market Selection Criteria

• Instrument can be any major forex pair.
• Requires a trending market.
• Volatility should be moderate.

Statistical Edge Metrics

• Expected win rate is 50%.
• Average win is 2R.
• Average loss is 1R.
• Profit factor is 2.0.
• Expectancy per trade is +0.5R.

Failure Conditions

• Strategy fails when the trend reverses.
• Avoid trading when the price is consolidating in a tight range.

Psychological Rules

• Be patient and wait for the price to pull back to the Fibonacci level.
• Do not chase the price.

Advanced Components

• Fibonacci levels are the key advanced component.
• A trend filter (e.g., ADX) can be used to confirm the trend.
• Multi-timeframe alignment with the 4-hour and daily charts is essential.

Location

• Strongest in a clear, trending market.
• Weakest in a ranging market.
• The strength of the trend is the most important factor.