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MacFibo trading strategy
2020-03-25 • Updated
Information is not investment advice
There are a lot of strategies, which require the usage of Fibonacci levels. Traders try to adapt them in the best way so they can be used effectively in a combination with other technical tools. Today we are going to discuss a strategy, which is widely known among traders. It is called MacFibo.
Traders recommend implementing this strategy while trading the EUR/USD pair and gold on the H1 and H4 timeframes.
What do we need for the following strategy?
At first, we need to apply three moving averages to the chart.
- First simple moving average should have the period equals 8;
- Second simple moving average with the period equals 20;
- The third moving average is the exponential one with the 5th
Secondly, we adopt the Fibonacci levels to our trading strategy. You can do it in the settings:
Here are the levels that we use:
We need to implement the adapted Fibo levels following the special rules. Generally speaking, they depend on the direction of trading.
When should we buy?
- The exponential MA should break the SMA with the 20 period from bottom to top.
- The bullish candlestick closed higher than the crossover.
- We apply Fibonacci levels from the high of the candlestick formed after the crossover to the low of the lowest candlestick in the trend.
- We open the long position at the opening price of the next candlestick. At the same time, we make sure that the level is not placed at the previous support or resistance zones.
- We place take profit at the 161.8 Fibo level.
- Our stop loss is placed at the 38.2 or 78.6 Fibo level. The choice depends on the placement of previous support or resistance levels.
Let’s consider the example on the H1 chart of EUR/USD. On April 12, the exponential moving average (violet) crossed the 20-period SMA (brown) from bottom to top. We opened a long position at 1.1287 after the price broke the previous resistance. We placed our stop loss at 1.1264 (38.2 Fibo level) and take profit at 1.1316 (161.8 Fibo level). As a result, we earned 29 pips.
When should we sell?
- The exponential MA should cross the 20-period SMA upside down.
- The bearish candlestick closed below the crossover.
- We apply Fibonacci levels from the low of the candlestick formed after the crossover to the high of the highest candlestick in the trend.
- We open the short position at the opening price of the next candlestick. At the same time, we make sure that the level is not placed at the borders of the previous support or resistance zones.
- We place take profit at the 161.8 Fibo level.
- Our stop loss is placed at the 38.2 or 78.6 Fibo level. The choice depends on the placement of previous support or resistance levels.
On the H1 of EUR/USD, the 5-period EMA (violet) crossed the 20-period SMA (brown) upside down on January 2. We opened a short position at 1.1420 after the bearish candlestick occurred below the crossover below the support. We place our stop loss at 1.1438 (78.6 Fibo level). Our take profit level is placed at 1.1376 (161.8 Fibo level). We earned 44 pips.
This kind of strategy also provides us an opportunity for scaling in. If the price is moving towards the Fibo target at 161.8 and the 5-period exponential MA crosses the 8-period simple MA from bottom to top (for a short position) or from top to bottom (for a long position) and then crosses it back, the open price of the candlestick after the crossover is the additional entry point. In that case, we place our take profit at the 261.8 Fibo level. Also, it is recommended to trail your stop loss after scaling in.
For example, on the same chart, we entered the short position at 1.1706. We added more at 1.1678 when the exponential MA (violet) crossed the 8-period SMA (orange). We moved our level of take profit to 1.1614 (261.8 Fibo level). At the same time, we trailed the stop loss to the 78.6 Fibo level at 1.1708.
Conclusion
Today we’ve considered how small adaptations to Fibonacci levels may be applied to an efficient strategy. We recommend you to practice it on our Demo account before taking the full advantage out of it.
Ekaterina Gorbatenko
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