Understanding the Forex Overlapping Fibonacci Trade Strategy

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What is the Forex Overlapping Fibonacci Trade Strategy?

The Forex Overlapping Fibonacci Trade Strategy is a forex trading strategy which utilizes the confluence of Fibonacci levels with other Fibonacci levels, support levels, resistance levels, pivot points or levels or any other supporting conditions to spot market entry points. 

Compared to other Forex strategies, it is simple and easy to read.

Trading Ranging Markets with Forex Overlapping Fibonacci Trade Strategy.

Ranging Markets are cases where the price of an asset tends to make the same highs and lows repeatedly forming an upper resistance zone and a lower support zone.

Ranging markets are the opposite of trending markets where the price clearly moves upwards as an uptrend or downwards as a downtrend.

In a nutshell, ranging markets form a sideways trend which is neither upward nor downward.

Now, it is these ranging markets that are characterized by support and resistance zones which we will use to trade the Overlapping Fibonacci strategy. 

Note: – it is not only support and resistance levels which are found in ranging markets; there are candlestick patterns too. Fibonacci levels, and even pivot points.

So in as much as support and resistance levels form the primary signal generator, we will also be looking out for these other supporting conditions: –

Trade Ranging markets using the Forex Overlapping Fibonacci Trade Strategy in the following simple steps:-

  1. Apply Fibonacci Retracements on your Chart.
  2. Identify a Ranging Market.
  3. Identify Fibonacci Levels Close to or at Support or Resistance Levels.
  4. Wait for the Price to Reach Support or Resistance Level.
  5. Wait for Reversal Confirmation.
  6. Enter Buy or Sell Position.
  7. Adjust your Stop Loss.
  8. Adjust your Take Profit.

1. Fibonacci Retracements.

The strategy is based on Fibonacci levels overlapping with either other Fibonacci levels or other confirmatory conditions. You, therefore, need to apply the Fibonacci Retracements tool on your chart before anything else.

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2. Ranging Market.

You are seeking to trade a ranging market so identify one.

It is quite simple to do so – you will be looking out for support and a resistance zone which seems to be respected by the price at least thrice.

What I mean is a zone where the price has seemed not to break upwards at least for three attempts for resistance and a zone where the price has failed to break downwards after at least three attempts for support.

If you successfully manage to identify such zones, then you have a ranging market and are ready to trade it using this forex trading strategy.

Support and resistance levels

3. Fibonacci Levels Close to Support and Resistance Zones.

In anticipation of trading opportunities, you can begin spotting the Fibonacci levels or extensions which lie in line with or very close to the Support and Resistance levels of the ranging market.

That way, when the price reaches the Support or Resistance levels, you will know that this is the most likely fruitful overlap between that Fibonacci level and the price at that support or resistance level.

4. Price Reaching Support or Resistance Level.

Wait for the price to move freely within the identified range to reach either your identified Support or Resistance Levels.

Once it reaches any of the two levels, then you are doing just fine, but are not yet ready to enter the market. Something more is remaining – next.

5. Reversal Confirmation.

One thing which is sure is the fact that the price at a support or resistance level has overlapped a Fibonacci level gives so much likelihood of price reversal.

But one thing which is also worth noting is that it may not be so always, which gives us reason enough to have that trading signal confirmed.

How then do you confirm that truly, a reversal is just about to happen? A number of things ranging from technical indicators, pivot points, and candlestick patterns among others have a way of signaling a trend reversal.

In a case where the price at a resistance level just coincided with a Fibonacci level, technical indicators show overbought conditions, bearish pivot points and bearish candlestick patterns like bearish engulfing will confirm a downward reversal.

In a case where the price at a support level overlaps a Fibonacci level, technical indicators showing oversold conditions, bullish pivot points, and bullish candlesticks like the hammer will confirm an upward reversal.

6. Buy or Sell Position.

A successful upward reversal confirmation after the price at a support level overlaps a Fibonacci level calls for a Buy position.

Inversely, a successful downward confirmation after the price at a resistance level overlaps a Fibonacci Level calls for a Sell position.

7. Stop Loss.

You Stop Loss would rather be close to your entry for exit in case of a fake-out.

2-5 Pips below the signal candlestick for your Buy position and 2-5 Pips above the signal candlestick for your Sell position.

8. Take Profit.

Depending on how high your market range is, you can take profit at the resistance level of the market for your Buy and at the support level of the market for your Sell.

Proper Risk to Reward ratio is always advisable.


*Risk warning:

The information provided does not constitute a recommendation to carry out transactions. When using this information, you are solely responsible for your decisions and assume all risks associated with the financial result of such transactions.
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Kenn Omollo is an investment writer and a business management consultant at Joon Online Limited. Reach him at - kenn@joon.co.ke

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