Fibonacci sequence was named after an Italian mathematician. Leonardo Fibonacci discovered the series of numbers where each subsequent number is the sum of the previous two: 1, 1, 2, 3, 5, 8, 13… With some numbers from this sequence (34, 89 and 144) we are going to find key levels of support and resistance on the price chart.
Let’s say the close price of daily candle on the EUR/USD chart was 1.3672.
Let’s add the numbers 34, 89 and 144 to the close price 1.3762:
1.3762 + 0.0034 = 1.3796
1.3762 + 0.0089 = 1.3851
1.3762 + 0.0144 = 1.3906
That’s how we find resistance levels of 1.3706, 1.3761 and 1.3816. At these level Buy Stop orders should be placed. Stop Loss orders can be placed at the levels of daily closure (1.3762).
To find support levels we need to subtract the same numbers from the close price:
1.3762 – 0.0034 = 1.3728
1.3762 – 0.0089 = 1.3673
1.3762 – 0.0144 = 1.3618
Sell Stop orders should be placed at the levels 1.3728, 1.3673 and 1.3618.
Stop Loss orders can be placed at the levels of daily closure (1.3762).
Take-profit target for each pending order should be 40-50 points from the open price of this order. If pending Sell Stop and Buy Stop orders haven’t been activated at the end of the day, they should be deleted and replaced with the new ones.
The strategy is designed for the trend trading and brings 300-400 points of profit per month. Pending orders are activated not every day, because the strategy works only during strong one-way movements of the price.