Dear friends, we continue the topic devoted to the Fibonacci grid levels, and today you will get acquainted with the trend trading methodology, an integral part of which this tool is. As beginning of the 20th century, Jesse Livermore said: “Prices are neither too high to start shopping, nor too low to start sales.” Over the past few weeks, we have been translating a statement into practice on the pound dollar chart. However, do not forget that any trend ends sooner or later. Therefore, in order not to turn from a speculator into a long-term investor, even with trend trading, the rules of money management and risk management should be observed.

Trend trading using the Fibonacci grid.

In addition to the Fibonacci grid, we need Bill Williams’ indicator Awesome Oscillator (AO) with which we will determine the beginning and end of the current wave. When trading with a trend, kickbacks are usually not deep, so we will enter the market using breakout orders: buy stop, sell stop.

Algorithm for opening sales in a bear market:

  1. We identify a downtrend. I recall that each subsequent local minimum should be lower than the previous one, each local maximum should be lower than the previous one.
  2. Using the AO indicator, we determine the extremes of the bearish wave. The base of the wave (t.1) will be considered the highest point preceding the indicator crossing the zero mark (vertical dashed line). By analogy, we find the peak of the wave (v. 2).
  3. We are waiting for the completion of the correction. One of the signs is the next intersection of the zero marks of the AO indicator.
  4. 5 pips below the peak of the wave, place a pending breakout order. Stop-loss is placed a few points above the correction extreme.
  5. Take profit set at around 161.8% Fibo.

By analogy, we are looking for purchases in a bull market.

Algorithm for opening sales in a bull market:

  1. We identify an uptrend.
  2. Using the AO indicator, we determine the extremes of the bullish wave. The wave base (t.1) will be considered the smallest point preceding the indicator crossing the zero mark (vertical line). By analogy, we find the peak of the wave (v. 2).
  3. We are waiting for the completion of the correction. One of the signs is the next intersection of the zero marks of the AO indicator.
  4. 5 pips above the peak of the wave, place a pending breakout order. Stop-loss is placed a few points below the low correction.
  5. Take profit set at around 161.8% Fibo.

In the next lesson, I will talk about the methodology for determining entry points using the Fibonacci grid in counter-trend trading.

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