61.8% Fibonacci Forex Trading Strategy | How To Trade 61.8% Fib Level

The 61.8% Fibonacci Forex Trading Strategy is a very basic Fibonacci trading system, based on the 61.8% Fibonacci Retracement level.

Here’s how it works:

Sometimes, when the price is in an uptrend, it will eventually retrace/reverse back down to the 61.8% Fibonacci retracement level and then shoots up from that level.
Similarly the opposite also happens in a downtrend, the price will rise up in a downtrend to the 61.8% Fibonacci retracement level and then shoot down again from that level.

Knowing this behavior, we can build trading rules around how to trade this price behavior.

Trading Requirements

You must know how to draw Fibonacci retracement levels on the charts
Currency pairs: any
Timeframes: 5 minutes and upward
Forex Indicators: none required.
Additional tip: look for levels of confluence that coincide with the 61.8%. This gives more “punch’ to the validity of any buy or sell signal that will be generated.

Price must be in an uptrend and it makes a peak and starts reversing down
Use the Fibonacci drawing tool on the MT4 trading platform and draw the retracement levels using the “bottom” and the “peak” of the price chart and wait for the price to go down to the 61.8% level.
When the price hits the 61.8% level, look for bullish reversal candlestick patterns to buy. Place pending sell stop order 1-2 pips above the high of the bullish candlestick pattern
Place your stop loss anywhere from 2-10 pips below the low of the bullish candlestick pattern
Options for take profit: use risk to reward of 1:3 to calculate your take profit target level or you can use previous swing high peaks like TP1 and TP2 shown on the chart below and place your take profit order there.

Make sure the price is in a downtrend and it makes and it makes a “bottom” and starts reversing up.
Using the Fibonacci drawing tool, draw retracement levels on the chart and wait for the price to head up and hit the 61.8% retracement level
If a bearish reversal candlestick forms in that selling zone, place a pending sell-stop order 1-2 pips below the low of the bearish candlestick
Place your stop loss order anywhere from 2-10 pips above the high of the bearish reversal candlestick
For take profit targets, you can use previous swing lows are your take profit target levels or calculate it based on risk/reward of 1:3

As with all forex trading strategies, everyone has limitations and for this, sometimes, you will see price will not respect the 61.8% level but will just bust through it.
Trading with lower timeframes can be an issue as there is a tendency for too much “noise” and you see the trade will fail to see the bigger picture.

A very simple price action trading system to implement
If and when those reversal candlesticks used as your signal to buy or sell are true/accurate, you are effectively buying at the very bottom or the top of a price swing which means…
That your risk/reward is excellent