How To Use Fibonacci Retracement And Extension

What Is Fibonacci?

Leonardo Pisano was a mathematician that came up with the Fibonacci Sequence. Unlike modern day mathematicians he started the sequence from 1 and not 0. The sequence goes 1, 1,  2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233. The number and the previous number are added together to make the next number. This is significant because the Fibonacci ratios are what we use in Forex to predict the market. 

What are the ratios?

The ratios are 23.6, 38.2, and 61.8 for the retracement. The way you get the ratio is by dividing the first number by the second number. For example 21/34=.618 which is considered the golden ratio. To get the 38.2 you would divide the 1st number by the 3rd number, for example 8/21=.382. To get the 23.6 you would divide the first number by the fourth number. For example 21/89=.236.

To get the Fibonacci extension ratios you divide the 2nd number by the 1st number. For example 144/89=1.618

Right now this might not make a lot of sense but as I continue everything will come together.

To use the Fibonacci retracement tool you have to know what a retracement is. A retracement is when the trend takes a small break and goes in the opposite direction, but eventually goes back to the direction of the trend.

The chart above shows two retracements. You have to be careful because that retracement could be a reversal, and that usually happens at major support and resistance lines.

As you see in the above picture the reversal happened after the 2nd retracement. You have to know the currency well enough to know when it will continue the trend and when it will reverse. 

How To Do Fibonacci Retracement & Extension

Now that you know what Fibonacci is I will show you how to use it. I will be using the USD/JPY graph to predict the next movement.

So I will start from a swing low and go to a swing high. Swing lows and swing highs indicate the high point that the market has been at without a retracement. If it retraces it is not recommend to continue the Fibonacci retracement past the retracement. You will want to start over. In the picture it retraced off of the golden ratio .618.

As we continue we will measure the swing high to swing low which will predict that it will hit the area of 1.619. This is called Fibonacci Extension. It is called that because we measured the retracement which allows you to predict how much it will go up.

We measure again from swing low to swing high and it retraces to the .618 area which means it will go up again. Notice that it bounced off the area multiple times, which gives signs of rejection. That further indicated that it will move up. Right now the market is consolidating. If any of you are familiar with harmonic patterns this is basically an extreme variation of the 3 drive. Once complete the market should drop quite a bit. How much? I am not exactly sure, but my prediction will most likely be a very bearish one.

Hope this helps.

Sincerely,

ManBearBull

Technical Analysis Candlesticks

Today's lesson will be about understanding what the candlesticks are telling you. Knowing how candlesticks work will give you an advantage to make more accurate decisions in the market place.

How Do Candlesticks Work?

The diagram above shows a bullish candle (white) , and a bearish candle (black). The candles have bodies and shadows. In the diagram the shadow is the skinny line that goes out of body. This means highest or lowest price for that period. White candles open at the bottom and they close at the top, and the black candle open at the top and close at the bottom.

There are different types of candles and I will list what they mean.

1. This candlestick is called a big white body. It is a very strong positive candle. You would usually experience these types of candles when a breakout happens. This type of candle gives you a more certain direction of where the trend or breakout will be going.
2. This candlestick is called a big black body. It signifies a strong bearish direction, and just like the big white body it gives you an idea of which way the trend or breakout will be going.
3. A positive candle with a large shadow above it means that rising power is starting to decrease. This means that the next candles could be bearish.
4. With a long shadow at the bottom this candle shows that rising power is increased and falling power is decreased
5. Falling power is increased and rising power is decreased.
6. It is a negative candle with a decrease in falling power. This could mean that the next candle could be positive.
7. This is a spinning top which means that a direction has not been decided. The buyers and sellers are canceling each other.
8. Bearish spinning top which also means the buyers and sellers have are equal and no aggresive trading has occured to change the direction.
9. Dragonfly Doji gives you a signal that a reversal could happen. Also Dojis could mean that the market has retested which can confirm the direction of a breakout.
10. Doji Star means reversal or breakout confirmation
11. Gravestone Doji tested a high zone and this could mean signs of reversal. 
12. Long-legged Doji reversal or retest of a trend.
13. Four Price Doji Reversal or be on stand by something may happen soon.
14. Hammer which means reversal so bullish
15. Reverse hammer which is a reversal so the trend will be going down.

Now we can start analyzing the market for common candle patterns that you may not have noticed.

In the diagram above you can see that there are multiple Doji's. When the market is consolidating(No major movement) and Doji's start to form that usually means that the market has not made any major decision yet. This could also mean the Doji's are attempting to test a break out. If you draw a trend line from the top of the first Doji and the top of the 3rd Doji the 4th Doji tested successfully and remained above the trend line which confirms that the break out will be bullish.

The Morning Star looks very similar to a Doji but the body is bigger. At the bottom of a trend a Morning Star usually means reversal.

Evening Star Reversal Pattern - Bearish

An Engulfing Bearish happens when the body of a bearish candle completely overlaps the body of a bullish candle. This is a sign of a bearish direction. The polar version of this candle formation is called Bullish Engulfing where the candle after a bearish candle completely engulfs the first candle.

The examples that I have shown are usually the most common and known types of candle stick patterns that are usually looked at. There are many other candlestick patterns that I would recommend studying for more knowledge in the market place. I would not recommend trading only what the candle sticks are telling you. I recommend incorporating this strategy to the other strategies that I have talked about in my previous blog posts. This will only benefit you to better understand Forex.

Candlestick Pattern Cheat Sheet

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How To Identify Breakout Formations

Up until now we have talked about psychology, trend lines, and zones. We never talked about the type of formations that could occur before a breakout happens. When you look at your charts after you read this blog. I want you to be able to see all the different formations that are happening. Lets get started!!!

Symmetrical Triangle

This triangle formation is called a symmetrical triangle. The highs are gradually becoming lower highs and the lows are becoming higher until a triangle is formed and a breakout occurs.  When dealing with a symmetrical triangle you might not know which direction the breakout will be. Know you can use the other skills in your Forex tool box to get a few confirmations.

Is it by a major support or resistance level? Lets check!

As I scroll out and check what has been going on for the past month I notice that a major resistance level has been tested 3 times. I can also see that the triangle formation has formed really close to the resistance zone and I can predict that when the breakout happens it will be bearish.

But the resistance zone might not be enough. Lets keep going.

The triangle is getting smaller, and I start checking my charts more often because I really want to catch this breakout. I start drawing trend lines looking for a breakout. In order to draw a proper trend line you need to connect 2 wicks. Due to the poor quality of the picture it might not look like I've connected 2 wicks, but rest assured that they are connected. The trend line hit a bearish candle and now I wait for a retest. Two hours later both candles have retested and rejected off of that trend line, and now I can make a sell entry. This was not a major breakout but 30-50 pips is always good by me.

Ascending Triangle

An ascending triangle is a triangle where the top of it is flat or flat-ish, because the market won't usually give you a perfect formation, and the bottom starts becoming tighter until a breakout occurs. Generally this breakout formation is bullish.

Always make it a habit to check for as many confirmations as possible. Draw a trend line and check for a breakout and retest. Then buy!

Descending Triangle

Exact opposite of an ascending triangle. The descending triangle formation has a flat bottom and pointy top. Descending triangles are generally bearish.

Pennants & Flags

Pennants & Flags are my personal favorite types of breakout formations. They are very easy to spot which allows you to get prepared for a breakout. One issue is figuring out the direction of the break out. Sometimes it is difficult to determine that, so you have to incorporate different analysis skills, like the use of Fibonacci retracement, trend lines, support and resistance lines, and Elliot wave theory. If you can properly use some of these techniques or even all of them, and they all confirm a specific direction, then the breakout will probably be in that direction. Below I will provide examples of pennants and flags.

Pennants look like little triangles that are getting tighter and tighter until the breakout occurs. When trading pennants it is advised to make a buy or sell stop in the direction you think it will move above or below the longest wick, which is usually the left side since it forms a tiny triangle. It is recommend to put a stop loss above or below the opposite wick that you chose to take a direction in. 

Flags look like little rectangles or squares that can be traded the same exact way you trade the pennants, by putting your stops above and below the longest wicks.

From my personal experience trading USD/JPY these formations take around 7-11 hours to complete and the breakout usually happens during the US session. 

After reading this I suggest opening up your charts and going about finding these formations so you can get used to spotting them. Thank you for reading.

Yours truly,

ManBearBull

Managing Trading Psychology

Types Of Goals 

When it comes to trading you have to construct goals that will keep you consistent and profitable without becoming greedy. When you focus entirely on the amount of profit you want to generate you lose sight of what it takes to make that profit. This tends to happen to the new traders that are starting out.

Example of a good goal - "This week I want to be profitable."
The reason why this is a good goal is because you did not set a specific amount of money that you need to make. As long as you made anything more than what you already had is good enough for you. If trading is a full time job for you I would hope that you have realistically attainable weekly goals.

Example of a bad goal - "I have to make $500 this week."

It sounds like a great goal, but in reality it could give you trouble. Mainly because if you do not reach your goal for the week then you will feel dissatisfied. Feeling like you have to make a specific amount of money within a time limit can be stressful. Especially in the market where the opportunity might not present it self right away. This can cause you to forcefully make trades even when you do not see the opportunity. Which can result with a loss.

When To Take Your Profit

Obviously when you make an entry you have an idea of what to set your take profit to. Several wicks later you are in the profit zone. The only problem is in the back of your head you are asking your self whether or not you should close your trade, or keep it going. There are several ways to approach this dilemma.

1. If the market is trending very well and you are already 40+ pips in profit. Set a stop loss I usually set mine 15 pips away. Depending on what happens in the market I can choose to change it as the market moves. If your stop loss gets hit you still exit with a profit.
2. Your take profit is 70 pips away from your entry and you are halfway there, but the market stops trending and starts consolidating. You can't move the market, so you need to take what the market is currently giving you. Afterwards reanalyze the currency pair and see if it would be smart for you to make another entry or for you to wait. A little profit is better than no profit.

When To Trade & When You Should Not

I have a whole list for this...

• Trade when your conscious because if you make a trade and then you go to sleep. You are not aware for what could happen in the market place for the following 7-9 hours.  Unless you are a swing trader then this rule does not apply to you. If you have never left a over night trade good luck sleeping...
• Learn which trading session affects your currency. Your favorite pair might not be so volatile outside of the specific time that the trading session is open.
• *Very Important* Do not trade major catastrophic news unless you are prepared to lose everything. Previous examples GREXIT and BREXIT.
• Trade regular news like NFP which occurs on the first Friday of every month. This tip is at your own risk. If you have no idea what NFP is then please do not attempt to trade it.
• Do not trade currency pairs that have undergone major news. For example I do not advice you to trade GBP currencies because of BREXIT. These currencies are highly unreliable and unpredictable. Your best technical analysis skills might not work and  you will lose your confidence in trading these types of currencies.
• I do not advise trading on Sundays. Its a new week and Sundays get a little weird.

Practice Safe Scalping *Pun Intended*

I'm going to give you a hypothetical situation. Lets say you did your technical analysis, and your indicators are all saying that the currency pair is looking bearish. By bearish I mean gradually bearish and not instant 200 pips down type of bearish. Even everyone on Tradersview is saying that the currency pair you are working with is bearish. There are major resistance levels that can protect you. The point is you are 100% certain that it is bearish. My best advice is to only sell the peaks. You want to do this because if it breaks out you will be in profit. If you decide to also buy the valleys , and you haven't been able to pay close attention then the breakout could go against you entirely and leave you at a loss.

As I gain more experience in trading I will probably run into more tips and tricks on how to manage my trading psychology that I will share with you. Everything that was written today was from my own personal experience, and you don't have to listen to it if you have your own system. If it did help thank you very much for reading my post.

Good luck,

ManBearBull

USD/JPY Analysis

USD/JPY 1 hour Analysis & Explanation 

Lets get down to business. I want to explain exactly what I did here, so you are able to understand it and hopefully learn something. First I pinpointed all the support and resistance levels. Everything in red is resistance. As you can see the 104.1 zone has been tested numerous times. This gives me a good indication that the market won't go past that unless something happens other wise. Nothing has happened thus far, so I wouldn't worry. Earlier this day I caught a breakout which was the tiny trend line I drew, a retest occurred in the resistance zone. I took a sell right at that point and made 40 pips. I took another look at the market, and spotted yet another break out. For the past 10 hours it has been in consolidation and just testing that zone that I drew with the red square. I took my Fibonacci retracement tool and I dragged it from a low to a high and for 10 hours the 0.50 level has been tested. I feel like a big jump is about to happen and I really want to catch it in the right direction.

Lets Look At The 4hr

On the 4 hr USD/JPY chart I spotted a breakout and I am waiting for that candle to close. If it closes below the trend line then it is considered a successful retest, and we should prepare on making a sell.

Have a wonderful night,

ManBearBull

Figuring Out Support And Resistance

What is support and resistance?

Best way to figure out the future is to scroll back in time and look. In today's example I used the daily EUR/USD chart and I scrolled back 2 years.The red boxes represent resistance and the turquoise boxes represent support. Support is the lowest level and it provides a sort of a cushion. When the market approaches support levels it usually tests them and bounces back. In a perfect world the market will always be bouncing back these support levels and we will always make money. That is not the case because the market can break through these supports and keep going further. In the diagram you can see the all time low is the 1.05 which has been touched 3 times. That is a good indication that it will be rather difficult to break those levels. If you were trading you would buy at these support zones.

Resistance on the other hand is the highest point that has bounced back. In the past 2 years this resistance zone has been the 1.137-1.145 area. If you only traded support and resistance I would recommend selling in that area.

Resistance can become the new support. The orange arrows clearly show that the left resistance area is now the new support area because the market has been more bullish. Based on only the information of support and resistance I can predict that the EUR/USD will be bullish because it is actually at a support level right now. This is not 100% certain, but as long as no major catastrophic news happens it should be bullish for the time being.

You can also combine support and resistance zones with trend lines. If a breakout happens inside a major resistance zone then it is most likely going to be bearish. I will provide an example below.

When you start combining different techniques it becomes pretty accurate at predicting market movement.

Hope this helped out.

Best,

ManBearBull

How To Use Trend Lines To Catch Breakouts

In this blog post I will be covering trend lines and how to spot breakouts.

We will be using USD/JPY 4 hour chart. When drawing trend lines there are many different techniques . This technique is used to spot breakouts. Trend lines only assist in spotting these breakouts, there are other indications that are quite important to know that will help you figure out which direction the market will be going. When drawing a trend line you want to connect the wicks. In the picture you can see that I have touched a higher wick to a lower wick(skinnier line above the body). You need at least 2 wicks, but the more wicks you can connect the better. As the trend line continues it breaks through a body of a candle. In the diagram it is a green candle that is highlighted. Once this break out happens you need to wait for confirmation before you buy or sell. This confirmation is a retest. When a retest happens a candle wicks to the trend line and touches it. The graph shows that the very next candle is a very big bullish candle that also had a wick which touched the top of the trend line. When that candle closes, and does not pass through the trend line there is a high probability that you can make a buy entry.

Lets continue with our analysis by drawing a bottom trend line. This trend line shows 2 important things. The first thing is it shows a bullish trend, and secondly after the breakout the trend is so bullish that it is pulling away from the trend line. At this point it is recommend to draw new trend lines and reanalyze what is happening. From what I can see it is ranging which means it is going up and down, but it is also slightly going up with each peak. That is all I can tell from the current amount of information. My recommendation would be to buy at a bottom and close at a peak. If you don't want to risk it. The best thing to do is wait until more candle accumulate for another technical analysis.

Hope this helped out.

Yours truly,

ManBearBull

NZD/USD Analysis

In a little over an hour the market will be opened. Lets start off by doing a little bit of technical analysis. For those of you who have more experience in trading know that you should pause trading on Sundays. It is the start of a fresh week and we have to see how things will go, so don't get to eager to make an entry. Always do your analysis and the first pair I will talk about will be NZD/USD. 

I usually start out with the daily, 4hr, 1hr times. The reason I do my analysis with these times is because they are more accurate and reliable. The lower the time frame the more noise occurs which can throw you off your game. I will be providing the 4 hour and 1 hour charts for this analysis. 

In the picture above is my 4 hour chart analysis. Lets start with the blue trend line and why I placed it there. When making trend lines you want to connect 2 wicks with the second wick being lower than the first. In the picture you can see that the green wick shot up and touched that part of the trend line. The trend line is also quite above any of the other wicks so its a strong confirmation that the trend will continue down for some time.

Another indicator is the text that says "Doji Reversal". When you see a candle that has a small body and huge wicks then it is most likely a doji which is a sign of a reversal. Following the doji shows the next 3 candles are bearish which confirms that the reversal did indeed happen. I also used Fibonacci retracement which is a little more advanced and I could most definitely cover that in one of my next blogs. But as you see there are 4 wicks that bounced off the 0.236. Right now that might not mean much to you but that is another indicator that fibonacci will predict that it will go to the 0.764 which is bearish. 

Lets take a look at the 1 hr chart analysis

In this chart you can tell that there is a breakout on the bottom blue trend line. The breakout is the red candle that is highlighted. Currently we are waiting for a retest which will give us a general direction. If you are not sure what a retest is. A retest is after a breakout happens a candle wicks to the trend line and closes without the body passing through. For example if the next candle is bullish but its bottom wick touched the top of the bottom blue trend line then that should indicate that it will be bullish.

Hope you enjoyed reading this, and please share this with your friends who are trying to get more educated on Forex.

Sincerely,

ManBearBull