【Fibonacci Practical Notes】 Episode 7: What matters is whether a reaction occurred
Just arriving and jumping on will lose to deception
Last time I wrote about Fibonacci levels overlapping with other indicators. Location, moving averages, RSI, horizontal lines, Dow Theory. The more they overlap, the stronger the justification becomes.
However, this is only a question of “where is important.”Even if locations overlap, it does not necessarily mean a reaction will occur therethis time, the continuation. “What happened there” is what we’ll look at now.
If you only trade because it reached 61.8% or reached 50%, you may lose all at once when Fibonacci doesn’t work. I’ve had losses from that too.
What’s important is,whether there was an actual reaction thereThis time, let’s look at the clues for that confirmation.
① Confirm with the candlestick shape
The candlestick shape itself is easy to understand.
Pin baris a form where the body is small and the wick is long. As a guideline, if the wick is at least three times longer than the body, it can be called a pin bar.
It falls near 61.8% with a long lower wick pin bar. This provides material for considering a buy. If the upper wick is long, it is material for selling instead.
By the way, there is anotherEngulfing patternwhere the previous candlestick is completely engulfed in the opposite direction. This is also commonly used as a reversal signal.
However, there is one caveat.Wait for the candle to closeIf only the wicks breach 61.8% but the body hasn’t closed yet, you cannot say a reaction occurred. I’ve also made mistakes rushing in without waiting for the close.
② Confirm with divergence
Earlier I talked about looking for signs of RSI turning up from below 30. This time, from a slightly different angle.
Divergenceis a phenomenon where price and RSI move in opposite directions.
For example, price makes a lower low while RSI makes a higher low. This is a sign that the downward momentum is weakening. In other words, it’s not about a level (below 30), but aboutthe shape (is it making lower lows or higher lows)to look at.
Reactions first, then enter—that is the conclusion of Part 2
Know the level’s meaning, choose a starting point, decide the target level, and overlay with other supports. But even after doing all this,one last step is needed: confirm the reaction itself.
It may seem troublesome. However, I think this one step is the best way to avoid deception.
By the way, the FTS I use is optimized for Fibonacci-based trading, so you can focus on trading and other indicators without being bogged down in trading tasks.
Actual screens and feature details are on the product page.
→Fibonacci Trade System (Product Page)
Next time
Part 2 ends here. From next time,Part 3, Trading precautionswill begin.
First, we will handleMTF (Multi-Timeframe) thinking. The perspective of overlaying the big wave with the small wave, which I left out this time, will also be treated together here.