Day Trading Rules for Fibonacci Levels

One of the most often asked questions I receive about day trading rules is: “How do I know which Fibonacci levels price bars will bounce off and which ones they will slice right through?”

That’s an important question because Fibonacci and other price levels are where we look to buy, sell and take profits.

The video below helps to answer that question to help you apply this and other day trading rules profitably.

You can email me at support@topdogtrading.com and I’ll be happy to show you how to get my Free Cycle Indicator to help you with your day trading strategies.

Enjoy the video and please leave your comments below.

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VIDEO TEXT:

Hey welcome to this video series. This is Doctor Barry Burns with Top Dog Trading and today we are going to talk about day trading rules specifically with regard to Fibonacci Retracement levels. What are they? Okay. First thing is Fibonacci Retracement levels are support resistance lines. And we are basically plotting levels on the chart after an impulse move defined how far the market will retrace before it continues in the direction of the trend.

So let me show you exactly what I mean here. You see the E-minis. So here is an impulse move and what we are looking for here, first thing is a major move in the market. A very significant move, and we are looking for a significant high, that will stand out to anybody on the chart, and a significant low. In other words highs and lows that will visually stand out to pretty much anybody looking at the chart. That’s one of the basic day trading rules.

DAY TRADING RULES USING FIBONACCI LEVELS FOR TRADE ENTRIES

Now after we get the impulse move, the question is, and the day trading rule that we are going to apply is, if we want to trade in the direction of this trend, now we have a retracement. And it retraces, okay we can see in hindsight, it went this far. But if we’re trading in real time, we don’t have that benefit. We want to know, well is the market going to retrace maybe just this far, and then go down? Or maybe it will go up this high, and then come down?

How would we determine that the market will only retrace this much, in other words this would then be a great entry point, to then take a short, in the direction of this original trend. And that’s the question we’re answering with today’s day trading rules on Fibonacci.

WHICH FIBONACCI LEVELS TO USE

Alright, so first of all let’s look at what these Fibonacci numbers are, let’s bring those up so that you can have them on your chart. So here are the numbers that I use. And we are going to specifically look at these. Remember this is a percentage of how much the market retraces back toward the initial impulse move where it started.

So we’ve got 0%, if it doesn’t retrace at all. 23.6, 38.2, 50, 61.8, 76.4, and 100. So those are the numbers that we’re using. Write those down if you need to. Import them into your own charting platform. And I’ll show you what it looks like here in just a moment.

HOW TO USE THE FIBONACCI DRAWING TOOL

So we go up here to our Fibonacci Retracements drawing tool. We start here. That’s the beginning of our impulse move. We bring it down to the bottom. And now you can see these numbers draw on the chart. So this is where we started from, if the market goes down here and it doesn’t retrace at all, how much is it retracing? 0%.

If it goes all the way back to where we started, it retraces a 100% of the move. So then we have these ones in between. 23.6, 38.2, 50 halfway, 61.8, and 76.4. So as you can see, now we are just going to be using this tool from this point on.

Now here is the tricky part that lot of people don’t talk about, with Fibonacci retracements for day trading. And by the way this works for swing trading, works for E-minis, stocks, forex, whatever. So we come to our first Fibonacci retracement and these are support resistance levels, is essentially what they are.

THE ANSWER TO THE BIG QUESTION

But here is the big question, here is the tricky part. So we have a resistance level right here. The 23.6% retracement of this impulse move right. How would we determine whether that level is going to hold and market will continue to go down from there or if it will break through. See in this case, it breaks through, so that resistance level didn’t work.

This time which one work. Well the 38.2 worked, right. That’s where it went to, oops. It went to there, and then it continued on down. But it could have also gone to 50, or could have gone to 61.8 or could have gone to 76.4. Heck, could have gone all the way back to 100% or even above.

So the big question, the tricky question here that very few people will answer for you is fine, everybody or not everybody, but lot of people know how to draw these levels, but they don’t tell you the secret. How to determine the day trading rule as to which one of these will be the final resistance level that will hold, and then the market goes down, back in the direction of the trend after that. Because, and that’s so important, because that my friends, that’s going to be your entry point to go short.

THE “HOW TO”

So let me show you how to do that. So now I’ve added the cycle indicator to the bottom of the chart. And this makes all the difference in the world. So as I said, Fibonacci levels as well as some other levels like pivots and so forth, they give us price levels where we would look for potential highs and lows on the market.

The other thing though is that a chart is a 2 dimensional object. So yes, we have price over here in the y axis, but then on the x axis we have time. And that’s it. That’s what you got to work with on a chart. Time and price. So we are looking for the confluence of time and price, in order to find where and when the market is going to put in a high and then continue back in the direction of the trend.

ADDING CYCLES TO YOUR DAY TRADING RULES

So the Fibonacci levels, they give us potential prices, where the market could top out. But what we would also need then is time. And that’s where the cycle indicator comes in. so you’ll see here, this is a topping of a cycle. The key element here is where it turns from green to red, right. In there. And then we match that with the price level. So again time and price. And that’s one of the day trading rules that helps us to determine that.

Now the price is pretty easy. The cycle indicator is a little more tricky. It’s not something I can go into now. This video is already little over time. But I do offer a free webinar periodically where I give people this indicator and teach them how to use it. It takes about an hour but the webinar is free.

Since this is being recorded and people will be watching this for months and years to come. I can’t give you a one particular link where you can access it, because we change the schedule of webinar and, but here’s what I will do. I will give you my email address and if you want to send me an email, at any time in the future, ask me when the next webinar is going to be. Where I give away the cycle indicator and teach you how to use it. I will be happy to do that.

So there you go, there’s my email address support@topdogtrading.com. Send me an email if you like to attend one those free webinars about timing your entries, and we will let you know when the next one will be, whatever month, year, decade, you respond.

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