INSANE Profitable FIBONACCI Trading Strategy

Trading is easy, however, consistently profitable trading is where the difficulty lies. Traders since the beginning of time have tried to come up with a strategy that they could use in order to increase their win rates while minimizing their risk. In this article, we go over one of the ways in which you could do so. We discuss the different indicators, the settings used, and also go over the results. Read on to find out more. 

Indicators Explained 

There are 2 main indicators used in this trading setup, and each of these indicators has been explained below in detail. 

EMA 

The EMA is simply the exponential moving average of the stock’s closing price over a given number of trading sessions. It works in a very similar way to the SMA (Simple Moving Average), except it gives more priority to more recent data as this is considered to be more relevant than old data. The parameter that you have to enter for the EMA is the time period. Usually, traders only go long when the current price is above the EMA, and short when prices go below the EMA. 

Fibonacci Retracement 

The Fibonacci Retracement levels are lines that are drawn on a particular chart so as to try and predict where the support and resistance levels are likely to occur. The levels are based on the Fibonacci sequence and can be used to identify entry and exit points for a trade. There are several Fibonacci levels that are used, but for the purposes of this strategy, we shall mainly be focussing on the 0.618 level, which is the 61.8% level of the lines. 

Settings

For this particular trading setup, a 200 EMA was used. The EMA line was used to define the trend, wherein longs could only be initiated when the price was above the 200EMA, and shorts only when the price was below the 200EMA. 

The trade entry and exit points were established by taking the high and low points of any pump or dump in the market. For example, if we were looking at a long, then the lowest point would be taken as the starting point for the retracement, and the high of that pump would be taken as a high. Then, we would try and see which retracement level would fit the strategy best. 

If we were looking at a short, then the highest point would be taken as the starting point for the retracement, and the low of that dump would be taken as a high. Then, we would try and see which retracement level would fit the strategy best.

The trades were usually initiated at the 0.618 retracement level.  

Results 

Initial Results 

After a backtesting session over past data, the overall results were: 

Profitability: 116.24% net profit 

Number of Trades: 53

% of trades profitable: 66.04% 

Profit factor: 1.872

Drawdown: 16.26%

Conclusion

There are several highly profitable trading strategies that you can use in order to trade the markets and profit, but there are few that are as highly effective as the one discussed above. By implementing it even in its current form, you can make significant profits. You can also tweak the settings and alter the parameters on your own, resulting in a higher win rate and/or profitability. 

Resources: 

  1. INSANE Profitable FIBONACCI Trading Strategy – YouTube 
  2. TradingView Indicator 
  3. Settings Used in the Video 
  4. Exponential Moving Average – Investopedia
  5. Fibonacci Retracement – Investopedia
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