Ichimoku and Fibonacci Strategy - a Truly Unique Forex Trend Trading System - Advanced Forex Strategies

Ichimoku and Fibonacci Strategy – a Truly Unique Forex Trend Trading System

What happens when we combined Ichimoku and Fibonacci? Simple! We get a powerful trend pullback strategy which makes it much safer for us to follow a trend. Essentially, we will be making entries and trading on pivot points identified by the Fibonacci levels.

For trend trading, the Ichimoku trading system is no doubt one of the most widely accepted trading system. Long term traders prefer to make use of the Ichimoku trading indicator as a way to capture trends in the markets which often persist over a prolonged period of time. While the Ichimoku system is in itself a complete trading system, it is by no means a failsafe method as price tends to post sharp corrections and could result in false signals. In order to avoid this, applying the Fibonacci tool to the Ichimoku trading system can be a versatile way to enter the trends on a retracement. Based on simple rules and on the fact that price never tends to move in one straight direction, the Fibonacci tool can be used to compliment the trend signals shown by the Ichimoku trading system. In this trading strategy, we present a rather simple way for traders to take up positions on a retracement after a trend is confirmed.

Ichimoku and Fibonacci Strategy – Trading Set up

We make use of the Ichimoku trading indicator in its entirety. This includes using the Ichimoku Cloud, the Chikou Span, Tenkan and Kijun Sen. After applying the Ichimoku system to the chart, the next step is to wait for buy and sell signals as outlined below.

Buy Signal

Wait for price to break above the Ichimoku Cloud from below. Prices should rise steadily before starting a retracement. When prices start to retreat from the first high above the cloud, using the Fibonacci tool, connect the high and the low. Wait for price to retrace the 61.8% Fibonacci level. At 61.8% retracement, simply follow the Ichimoku signals, which is a bullish crossover of Tenkan and Kijun Sen and price trading above the cloud. Exit at the 127.2% Fib level with stops at the low near the 61.8% retracement.

Sell Signal

Wait for price to break the cloud from above. Prices need to continue to decline steadily before retracing the move. Using the Fibonacci tool, connect the high and low and wait for price to retrace to 61.8% Fibonacci level. At this point, traders can sell, based on the regular Ichimoku trading signals, which is a bearish crossover of the Tenkan and Kijun Sen and prices trading below the cloud. Exit at the 127.2% Fib level with stops at the high near the 61.8% retracement.

Ichimoku and Fibonacci Strategy – Buy/Sell Signal Example

Buy Signal Example

Ichimoku and Fibonacci - Buy Signal
Ichimoku and Fibonacci – Buy Signal

In the first chart above, we notice how prices were trending lower at the left of the chart. At point 1, prices start to move higher and eventually break above the Ichimoku cloud before starting to retrace from point 2. Using the Fibonacci tool the low and the highs are connected. Prices complete their retracement near 61.8% Fib level, which incidentally also shows support with the Ichimoku cloud. We wait for the Tenken and Kijun sen to make a bullish crossover where a long position is taken with stops near the 61.8% low. The trade is then closed when prices reach the 127.2% Fib level.

Sell Signal Example

Ichimoku and Fibonacci - Sell Signal
Ichimoku and Fibonacci – Sell Signal

The sell signal example in the chart above shows prices breaking down below the Cloud, marked by points 1 and 2. The Fibonacci tool is used to measure this move as we anticipate a retracement to the 61.8% Fib level. Here, the Tenken sen and Kijun sen make a bearish crossover and when prices close below the cloud, the short position is taken which is then closed out when price hits the 127.2% Fib level.

Ichimoku and Fibonacci Strategy –  a Truly Unique Forex Trend Trading System

As illustrated above, the Ichimoku and Fibonacci trading system is rather unique, in that the Fibonacci tool helps traders to compliment the trend following system using the Ichimoku trading indicator. Because positions are entered at key retracement levels, the risk/reward set ups are usually high with tight stops. When trades do get invalidated by hitting the stop loss, traders would be confident to know that prices are continuing to move in the opposite direction. The fixed stop loss and take profit levels ensures that there is no ambiguity involved when using this trading system.

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