Fibonacci Retracement and WMA Forex Trading Strategy.
Forex traders rely on their trading strategies to identify perfect entry and exit points. That, as a high quality Forex trading strategy help them to maximize profits, and mitigate losses. However, trading in shorter time-frames involves comparatively more risks. Therefore, the importance of a sound Forex trading strategy in such cases is paramount.
Here, we’re about to learn a very useful forex trading strategy that involves Fibonacci retracements and WMA. This strategy requires traders to have a basic knowledge of using Fibonacci indicators in Forex.
Time-frame: 15 minutes is the most preferred time-frame. However, you can choose any time-frame over 5 minutes and less than 3 hours.
Currency Pairs: Any currency pair can work well with this strategy.
Indicators Used: 5WMA (Weighted Moving Average) indicator.
Firstly, check the price chart to find out the most recent swing high (Fibonacci A) and the most recent swing low (Fibonacci B).
Now, join the two points by pulling from Fibonacci A to B. to know whether to pull up or down, find out the trend’s direction. If the trend is sideways, find proper AB swings, and set Fibonacci in both upward and downward direction.
After setting it up, wait for the Fibonacci retracement from AB swing to unfold.
If the trend retraces back, try to find out whether these three conditions have been filled:
The prices must touch 5WMA.
The prices should at least touch 38.2% Fibonacci retracement line.
Furthermore, the 61.8% Fibonacci retracement level must hold. Therefore, the prices should never close above (down-trend) or below (up-trend) the 61.8 retracement line.
Entry & Exit.
If all these criteria have been met, then: enter a long position if a candle closes above the 5WMA line. If a candle closes below 5WMA, enter a short position.
Stop Order & Profit Target.
In case of a down-trend, place your stop order 5 pips above the 61.8% Fibonacci retracement level, and 5 pips below the same level in case of a up-trend. Set your profit target at 161.8% Fibonacci expansion level derived from Fibonacci A swing.
Now that you know the rules of this forex trading strategy you might want to try it.
I suggest that you start with a demo account. If you try it on a real live account start small. Gain the confident, and once you feel ready raise your positions size gradually.
Do that, but always while considering your account risk management rules!
Learn also the ADX and MACD trading strategy.