In the past Fibonacci extension tools were not much popular in the forex industry as it is now today. The Professional traders used to trade the Forex Market with the help of support and resistance level. The professional’s traders are now much more dynamic by the blessing of Fibonacci tools. The Fibonacci retracement combined with previous support and resistance level works like a charm for the traders. After extreme back testing experts has developed a unique way trading the NZDUSD daily chart with RSI, Stochastic and Fibonacci retracement tools.
NZD USD daily chart
Figure: Perfect day chart trading technique in NZDUSD
In the above figure, the swing and swing low was noted by the trader, The Fibonacci retracement level was then drawn from the swing low to swing high for potential trade setup. Stochastic and RSI indicator has been used for the confirmation of the trade entry zone. Some people use this same technique to trade other major pairs in the forex industry. But the default setting of stochastic oscillators works best with the NZDUSD pair in the forex market.
Trading condition and entry signal
1. This Fibonacci trading system works best RSI and stochastic oscillator only NZDUSD pairs. The default value of the tools should be used while trading with this strategy
2. Traders first draw the retracement level of the NZDUSD pair from the swing low to swing high for uptrend and for down trend they use swing high to swing low.
3. The major retracement level of the Fibonacci tools should take into consideration while trading with this setup. The major retracement levels are 38.2%, 50% and 61.8%
4. Stochastic oscillators should be used with the preset value in order to confirm the trade entry area based on the overbought and oversold condition of the chart pattern.
5. RSI should be used as the second indicator to confirm the overbought and oversold area. The pre-set value of RSI period can be changed to 9 for better understanding.
6. Both of the oscillators should indicate the same signal at the point of entry signal. If there is a deviation between the two oscillators then no trade will be executed.
7. Confirmed by the indicators and Fibonacci retracement level, traders can enters into the trade with a proper stop loss. The general rule for setting the stop loss in this trading strategy is just below the 61.8% retracement level for uptrend and for down trend it should be set above the 61.8% retracement level.
8. Money management is another important parameter before trading any valid trading strategy. The professional traders never risk more than 2-3 of their account equity in any single trade. Those who take more risk they make sure that it is within their tolerance level.
9. No trading should be bring live into the market without prior demo testing. As a traders you must feel comfortable before trading with new system in the forex market. It is advised that every single individual should do the demo trading for at least two month before trading the new system with real money.