Sticking with the most used, proven tools in breakout trading is what most traders do nowadays to avoid the risk of losing money as a result of false breakouts, and the like. However, this approach narrows them down to these few tools and forgo the greater reward that some uncommon tools may bring in predicting market movements in trading.
In order to have a competitive edge in trading; whether it’s Stocks, Futures, FOREX, etc., it is best to learn and use some uncommon tools that only a few people know about; the results and implications it generates, to win the market.
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Today, I’m going to share with you a FIBONACCI and FOREX stock market rarely taught, trading tool. It is called the FIBONACCI spiral. This is not to be confused with the fib ark or the Fibonacci circle drawing tool. This is different. So, first of all, I’m going to show you real quickly what it looks like. Then we’ll talk a little bit about it, the mathematics of it, and then I’ll show you how to actually use it on your chart. I’m using Thinkorswim here and we just go down here to FIBONACCI spiral. Basically, what you’re going to do is click and then release, and you’ll see what it does. So you can see it’s not really forming circles because the circle tool would connect here. These are expanding arcs or whatever you want to call them.
They continue to expand and that’s what the difference is between; this and the FIBONACCI circle or Fibonacci Ark drawing tool. Now, it only takes a lot of time explaining FIBONACCI to you today. You can look that up on the internet, Google it, and you can get all the information you want, but just as a quick little maybe 60-second introduction as to why we would even consider using these spirals. So your Fibonacci sequence is basically this and it goes on. This is the sequence; zero plus one equals one, one plus one equals two, one plus two equals three, and on and on and on it goes. So that’s where we get our numbers from. All right, now let’s talk about how that plays out in nature. So this is a basic diagram of the FIBONACCI spiral.
Fibonacci Trading Strategy
All right? How is that calculated? So the spiral is created by taking the numbers in that sequence and we begin with a golden rectangle and we break that down into smaller squares based on the Fibonacci numbers in the sequence. We divide each square with an arch. And by doing that, the pattern of the FIBONACCI spiral is created so you can see there and that you’ve got your number. So the bottom line is that mathematicians and scientists have found that this pattern is actually found in nature everywhere in nature. It’s just amazing. We find it in botanicals. You see this same kind of pattern in hurricanes. We see the pattern in the formation of galaxies overhead. The most famous example is probably the Nautilus Shell and we’ve all seen that of course
So how do we apply this to trading? What we’re going to do is it’s going to be applied to a chart and we’re going to create support resistance levels that are both a confluence of time and price support resistance. So what we do is we come down here to our drawing tool and we choose the FIBONACCI spiral. This is Thinkorswim again, and we have to click.
Then we pull it up to the high; let’s see if we can get that actual high there and lock it in. OK? So it’s created in our spiral as I showed you before, but now we’re applying it directly to the price bars. And as you can see here, it is a projection, so Fibonacci projects out into the future. So I drew it from this low to this high that your impulse moves because that is where we had our major thrust and then the market just went sideways from there.
Breakout Trading Strategy
Now what we’re going to be looking for is the breakout of the next spiral and it comes in right here. So you could look at this as a type of breakout trade if you want it to, but it adds. In other words, you can have resistance above there and we’ve got, again, typical, a little false breakout comes right back down here. But here, again, this tells you this is a good time and price because it is an arc, alright? Or spiral more properly. It is measuring both time and price in one tool. So it comes together at that time and at that price and that’s when we look for the breakout. All right, let me give you another example. Here’s how flexible this thing is by the way. It’s pretty cool because it’s really based on ratios.
Now we’re going to draw it from that low up to that high because that’s the next impulse move, right? That’s the next move from low to high. And then we’d go sideways. So now let’s come back down here and move our chart around a little bit and you can see again, this tool is not a tool for measuring precision moves to the bar, to the penny, to the pip. We’re looking for zones, for areas, so you don’t want to use this alone. You definitely want to use this with other tools that you’re already using what had been proven. So we’re looking for a little shift here and we broke through it and it’s not obviously right on the line, but after it gets very close up, now this one’s pretty good.
Breakout Trading Method
Here, we have a similar thing and this is the kind of thing that I look for with us. We’ve got resistance and, again, this is now the time that it breaks out of that previous high. So for breakout traders, if you’re looking for the breakout of resistance in both of these examples are showing you, then this is something that you can add to your repertoire and say ‘I’m going to wait until we get the confluence of time price as indicated by the FIBONACCI spiral’. And then, if I get other signals, volume, price bars, indicators, whatever else you use, you can use this in conjunction with that to add to the probability of your trade.
Now, one question I know that I’ll get is, ‘hey, where is this tool on my charting software?’ So I can’t answer that question for everybody. Unfortunately, I don’t know the details of every single trading platform out there. I know this is on Thinkorswim. So, please just contact your support team that provides you with a trading platform and ask even if they have the tool, because this is not a tool that is very common. It’s a great thing because if you’re using something that most people don’t use, that gives you an edge and that’s what you’re looking for in trading. This can be an edge where you see something on your charts that the person on the other side of the trade doesn’t see. They don’t see. That is why it’s actually kind of great that it’s not on that many trading platforms.
Rubber Band Trade Strategy
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