Student’s Question:
The netdania charts have fibonacci and fibonacci retracement, I dont know how to use the plain old fibonacci, but it seems to show that the CAD/JPY is going down. Each time it hit above one of the regular fib lines, it went down. On zoom, there is a bearish engulfing candle.
Power Course Instructor’s Response:
Using the CADJPY Daily chart as an example, in a downtrend we would draw the Fib line from the Swing High to the Swing Low. We would then look for price action to retrace to one of those Fib levels. On the chart below we can see that it tested the 50% level and then began to move to the downside.
When the 50% level was tested by price but not compromised, when next candle opens, a short position can be taken with a stop just above the wick that penetrated the Fib level. To insure a 1:2 Risk Reward Ratio, double the size of the stop to set the limit on the trade.
