Things with fibs: A toolkit of strategies using fibs for entries, stops and targets.

[HoleyProfit]

I've been trading with fibs for around 15 years. In this time I've made various observations on fibs, bets around those observations and then usually a lot of time trying to work out why I wasn't making money.

At this point in time I have somewhere around 25 specific strategies built around recurring tendencies. That sounds like a lot more than it is because a lot of the strategies are based on the same general underlying concepts and just have slight derivative rules.

In this thread I'll cover the basic rules for various strategies (10 - 15 in total) and do running examples of trade signals and execution.

The underlying thesis of my approach to trading is, used correctly, fibs have a very high probability of marking decision levels in the market. They don't tell you if price will go up or down, but they can help you to know where big decisions can be made and structure smart bets around that.

Example:

Let's say we have a key fib level on something at 100. It has been going up, has hit 100 and 100 is a big fib resistance. What happens at 100 is probably going to be important. Maybe it reverses and drops 50 - 70%. Maybe it breaks out, pops 20% and holds a retest.

From this I can structure some bets that make sense. If I can short with a possible 50% gain and only risk 5% because I "Know" if the level fails we'll likely go strong up for a while, this is a great pay off. Even if you get those 1/3 of the time they come good. Alternatively, I also "Know" the 100 level was an area big sellers could have come in. If they didn't, maybe there are none. I should probably review my bias and plan further upside levels. If and when this level is retested, I again have a chance to take an asymmetric RR bet.

High RR trading can is tricky to actualise. I mean, it's very easy to be a great high RR// low win rate trader in a spreadsheet - but it is hard to actually do. To achieve high RR trades you have to;

- Accept higher loss rates.
- Accept more spike outs.
- Be able to enter with nominal moves against your entry price.
-Be able to target and trail stops effectively.

And then, if you do all of that - you need the market to actually make that nice smooth run. Which is rare, but it's what you need for a high RR trade. Otherwise, you're just swinging huge PL. For example, if I have 10 points risked for 50 points target and it goes 30 points for me and retraces 20 points - I've drawn down 2* my risk. At that point it didn't even make sense from a RR perspective, really. I was 3R up with 2R I could possibly gain. 1R at risk to stop. Can lose 6R and win 2R. Even if this boomed off the point retracement and hit the target for the big RR move - this is very risk inefficient.

With all this being said, there are times we can get high RR trades using fibs. When we can accurately time the entry, define a far off target and have suitable trailing stop markers to lock in profit and prevent being a "High RR trader" who is actually in a disgusting RR position if you base it on their equity.

In this thread we'll cover a mixture of big trade hunting and also knowing the situations where it's better to go for trades with higher win rates and lower RR and just grind up your PL curve.

We'll cover various assets in the thread (I use these for all markets). These can be used on any timeframe but for the purposes of it being less messy to follow we'll stick to setups on 1-4 hour charts perhaps dropping into 15 minute charts to help with execution at signal levels.

- If anyone has any questions regarding fibs or my use of them, I'd be happy to help. You're welcome to ask.
- If anyone would like to argue with me about if fibs work, respectfully, I have zero interest in it at all. I won't engage or debate it. It's a results game, we'll track results.

 

[HoleyProfit]

We'll kick off with the most simple strat I have and the one that probably has most utility. On a net basis this strategy accounts for about 1/4 of my profits.

It's a simple trend continuation strategy where once we have an impulse leg we fib start to end of it and the 76% retracement level is where we want to get in.

Look for sharp pullback. Some chop and then a fast spike out to the 76.

Wide stop is behind the 100% retracement. Tight stop behind the 86% retracement. Targeting a retest of the high/low has a min RR of 1:3 (Risking 25% of swing to make 75%). Targeting 1.27 extension with the 86 stop can yield 1:5 RR.

We are going to opt for the 1:5 RR trade here. The risk is getting wicked out on the news but the chance of the 1.27 hitting in a fairly smooth swing is reasonable. I'd puts the odds of this trade winning not worse than 60/40 against.

 

[HoleyProfit]

Here's the same 76 setup in EURUSD.

Limit order for a nominal spike lower.

 

[HoleyProfit]

Same strategy as above but a bearish version. Shorting the Nasdaq rip.

Valid short signal filled and also compliments my larger roadmap bias of a stop hunt before a real bull move.

 

[HoleyProfit]

The Nasdaq short entry here is additionally supported by a 1.61 extension of the false reversal.

I call this the 1.61 head fake strategy. It's a reversal strategy that aims to catch false breakouts.

(I'll go into more detail on the 1.61 thing later. When to use it/ what to expect etc. For now I'll just say whatever you do, don't bet all 1.61 spikes reverse. There's a specific requirement for it which we'll detail later).

 

[HoleyProfit]

Nasdaq stop to just over entry. Essentially an even stop out.

The strong bear move here looks for 61 to break and hold a retest.

If 61 holds - I want nothing to do with it.

We sometimes wick spike out (and they suck) but most of the time if I am right the high is in here. And if I am wrong, it only gets worse.

I'll par down my risk and freeroll for the reversal.

 

[HoleyProfit]

Nasdaq turn down should come soon if this is working.

We have the big resis confluence and now we have a possible head and shoulders w/ 76 fib.

Now or never. Looking for a hard rejection here or above the bigger 76 I'll stop out for nominal loss.

 

[HoleyProfit]

No good. Out at basically even.

Fib were good for levels, which is the proposal. Here the high and low were marked with fibs with both being spotted in real time. The high for the short and at the low I protected from loss. If this was a bigger chart move, at the low I could have locked in some.


Anyway, onwards and upwards. Let's go to the next strat.

The 76 I find is a really useful level for trend decisions. Most corrections ends around there and when it breaks and 86 hits the odds skew towards continuation (I find 75/25 in favour).

I have a strategy designed to trade failures of the 76. Here it is;

86 hitting is more commonly trend failure. If an 86 hits, we often have an immediate reaction to this but it's just a pullback and it will hold retests of previous fibs.

So now we're waiting to see if the 86 hits and if it does we're going to set a limit order to enter a retest of the 76.

We're looking for a shallow correction or blue or a deeper one of red;

Blue stop is behind the 61 and red is behind the 50.

Target for a 86 break is the 1.27 extension.

If the 1.27 hits, then we roll right into the next strategy that deals with reactions around 1.27 fib.

And if we fake break the 76, hit 86 and then hammer down under the 50 fib - that's about the worst thing that happens to my strategy set. Which makes it a fun way to start the thread.

Trade 1 - Even.
Trade 2 and 3 pending (2* risk can be lost).

** 86 must be hit to trigger this. I've stopped out early here but the system stop is technically behind the 86 and a near miss of the 86 can still be valid for a reversal**

 

[HoleyProfit]

New highs annul the original 76 limit buy orders. They'll be cancelled if SPX and EURUSD make new highs.

 

[HoleyProfit]

A way we can better refine our entry area and stops for better RR here is to also combine a dip buying strategy.

For example, here a 76 retracement entry agrees with the same areas planned.

Same with SPX.

Going to avoid using small charts though so I don't have to do a million updates. We'll look more into this if we get bigger chart version of the same.

 

[HoleyProfit]

Last trade for now because I do not want to build up over exposure.

Long BTC on the 76.

Target is the 1.27. Stop behind the 86. A little over 5:1 RR.

 

[HoleyProfit]

Nasdaq criteria filled.

Limits set.

Net exposure is now 3R. Minimum net return is a little over 7R and if the first Nasdaq trade loses but the second one wins then the net return positional is about 11R.

Nothing more to do for a while. Limits in. Will update tomorrow.

 

[HoleyProfit]

BTC stop hit.

No fill yet on indices.

BTC didn't quite retrace enough off the 86 to trigger the counter strat. Hitting the would be target of that now.

Next 76 area filled. 1:6 RR trade taken.

 

[HoleyProfit]

I don't really care about the concepts of "Right" and "Wrong". I feel when you've done this for a long enough time you have to accept it is just a random distribution. I'll bet on my setups 1,000s of times and it's only logical I'll experience all outcomes.

What I care about is not spending time in losing trades I do not have to.

For example, with the BTC trade I could have used a bigger stop and still been in the OG trade now - but what's the point? Might as well get out and get in on the next level.

Now if we retest my original entry I'll be net up rather than breakeven. And if not, then all stops were going to hit anyway and at least I improved my RR on the position.

 

[HoleyProfit]

Nasdaq pending order close to invalidated. Hitting 1.27 would fill the target move for the 86 and we need to scrap that order. If and when this happens we'll proceed with trend following strats.

 

[HoleyProfit]

We're using the same rules for execution here are we're using for a broad roadmap of possible moves.

Here's SPX fibs from the 2022 drop.

86 hits. Pullback to 50 fib. New high.

Now we have possible resis 1.27 (Failed). 1.61 (Soon to test). If these levels break - strong move up to 2.20 - 2.61 (Where a bear bias comes into play).

So long as we get execution signals along the way to confirm trades, this is the general roadmap we're looking at. 5800 or so a big level and if that breaks 6,500 - 7,500 is fair game.

If a 1.61 breaks, the move usually only gets stronger.

2.61 can be a big fade level, but let's not get ahead of ourselves. 7,000 is a fair way away right now.

 

[HoleyProfit]

These concepts for a failed would be bull trap in SPX backtest really well. Randomly apply them to pullbacks and you'll find they have a reasonable hit rate.

Here's a random pullback from the 70s.

 

[HoleyProfit]

Something I'd like to show you with this 76 thing is how much easier it can make decisions than just watching the PA.

Here's a real time example to test. This BTC chart - looks quite ugly, right?

Bit knife-catchy. Either looks like a short or take no action.

But when you add the fib - absolute no brainer high RR support fill.

 

[HoleyProfit]

I run into a lot of people who range from sceptical to outright cynical about fibs.

From "I don't think it works and would need to see something big to convince me" to "It doesn't work and whatever you say your results are over 15 years I don't believe if it does not my preconception".

I'm all for the offering proof and can't be arsed at all with the second group now. The same things have been said for too many years. I've debunked them too many times. I simply do not care. It's not important people agree with me they work - it's important I make money.

But the one thing that always brings a chuckle is when they say, "You can draw the fibs any way you want and make it say whatever you want".

Yes .... yes you can.

And I agree, that probably won't work.

 

[HoleyProfit]

I spoke about big RR hunting. This is a possible situation for that.

Here we break it into a few sections.

1 - The 76 is a possible low. Wait and see what happens.
2 - If there's a reaction, drop to small charts and look for retracement entries.
3 - Stop goes under recent small chart low.

This gives a 1:12 trade. And many times, if the 1:4 works here the 1:12 also does.


I said for big RR hunting we need a reason to believe the move will be strong and not choppy with big pullbacks.

We can support that here because if this is the start of an up move then this drop is the big pullback.

If and when this ends we should have another impulse leg to take out the high.

So we have an entry level which may be accurate.
We have a way to tighten stops to increase RR.
We have a reasonable expectation of a flowing move.

Which makes it worth trying high RR trades. They don't all work, but not many have to.