2(d). Fibonacci Entry Strategy for Compass - Advanced Strategy
Fibonacci Retracement Entry for Compass
Fibonacci Entry Strategy for Compass (Advanced Trader)
For experienced traders, there exists a more strategic approach to entry compared to the 'immediate' option. Immediate entry is most suitable for those seeking a straightforward approach or traders at an intermediate level of experience.
When Compass signals a trade, our recommendation is to refrain from entering immediately at the start of the new candle. Instead, we advocate waiting for a retest of either the 38.2%, 50%, or 61.8% Fibonacci extension levels. We'll delve into why these levels hold significance shortly.
Here's how the dRisk team employs this entry method: Upon receiving a Compass buy or sell signal, we don't rush to enter at the next candle open. Instead, we pinpoint the 38.2%, 50%, or 61.8% extension levels and execute our entry upon reaching these levels. This Fibonacci extension-based entry approach allows us to achieve a more precise entry point.
Before we delve into our entry example, it's crucial to ensure you have a clear understanding of two key questions: What exactly are Fibonacci Extensions, and why do they hold such importance in trading?
Fibonacci extensions are a key tool in technical analysis used by traders to identify potential price targets or levels of support and resistance beyond the typical retracement levels. They are based on the Fibonacci sequence, a series of numbers where each number is the sum of the two preceding ones (e.g., 0, 1, 1, 2, 3, 5, 8, 13, 21, and so on). In trading, Fibonacci extensions are applied to price charts to predict potential future price levels.
Here's why Fibonacci extensions are essential for traders:
Price Target Identification: Fibonacci extensions help traders identify where an asset's price might move after a significant trend or breakout. These levels act as potential profit-taking or reversal points.
Psychological Levels: These extensions often correspond to psychological levels in the market, making them significant points of interest for both traders and investors. When many market participants are watching these levels, they can influence price action.
Risk Management: Fibonacci extensions can assist traders in setting stop-loss orders and determining risk-reward ratios. By identifying potential price targets, traders can make more informed decisions about where to place stops to limit potential losses.
Confirmation Tool: When Fibonacci extension levels align with other technical indicators, trendlines, or chart patterns, they can provide confirmation signals for traders. This can increase confidence in a trading decision.
Market Sentiment: As many traders use Fibonacci extensions, they can become self-fulfilling prophecies. When a price reaches a common Fibonacci extension level, it can attract buying or selling interest, affecting market sentiment and direction.
Now that you understand the significant impact Fibonacci extensions can have in the market, let's explore a practical entry example.
Imagine you receive a high-probability signal from Compass. Instead of rushing to enter the market as soon as the new candle opens, we take a more strategic approach. We use the Fibonacci extension tool, spanning from the pin of the signaled candle to the pin of the current candle. This allows us to gauge potential price levels more accurately.
To execute this strategy, we place three limit orders:
The first limit order is set at the 38.2% Fibonacci extension level.
The second limit order is positioned at the 50% Fibonacci extension level.
The third limit order is established at the 61.8% Fibonacci extension level.
Where can I locate the Fibonacci Extension tool on TradingView?
After opening your TradingView chart, navigate to the left side of your screen and locate the Fibonacci tab. Next, select "Fibonacci Extension" from the dropdown menu.
What is the correct method for positioning the Fibonacci Extension tool?
There are various techniques for utilizing Fibonacci retracement levels, but in this discussion, we'll focus specifically on optimizing their use in conjunction with signals from Compass. When employing Fibonacci retracements for this purpose, it's crucial to apply them from one pin to another.
For sell signals, you should place the Fibonacci retracement from the upper pin to the lower pin of the signaled candle. Conversely, for buy signals, you should set it up from the lower pin to the upper pin. This precise placement method provides us with an accurate extension level marked on the candle, which is essential for strategically positioning our limit orders.
Where Do I Set Limit Orders?
Once the Fibonacci tool has been accurately positioned from the upper pin to the lower pin after a Compass signal, the dRisk team proceeds to set limit orders at the key Fibonacci retracement levels of 38.2%, 50%, and 61.8%.
While this is our preferred trading approach, it's entirely up to you how you choose to interpret and incorporate this information into your own trading strategy. Your personal utilization of these techniques may vary based on your individual trading preferences and objectives.
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