Introduction to the Auto Fibonacci Indicator
The Fibonacci Ratios is a recurring sequence of ratios that is recurring in nature. However, it also does apply to patterns in price movements.
The Auto Fibonacci indicator is a tool that traders can use to identify such ratios more easily.
What is the Auto Fibonacci Indicator?
The Auto Fibonacci indicator is a custom technical indicator which identifies key price levels which could act as support or resistance levels based on Fibonacci retracement levels. These levels can be used as price points where traders can anticipate potential pullback reversals and trade trend continuation setups.
How the Auto Fibonacci Indicator Works?
The Auto Fibonacci indicator has a variable which traders can modify in which this would be the n number of periods where the indicator would detect the highest high or the lowest low for the said number of periods. This indicator would then detect the direction of the latest trend based on the distance of the current price from the highest high or the lowest low.
After detecting the direction of the trend, the highest high or lowest low for the n periods would be considered as swing highs or swing lows. The indicator would then automatically plot a Fibonacci retracement tool connecting the swing high and swing low depending on the direction of the trend.
This Auto Fibonacci indicator plots a retracement tool that has levels 0, 23.6, 38.2, 50, 61.8, 100, 161.8, and 261.8.
This indicator allows traders to modify the number of bars on which the indicator would identify the trend direction, as well as the swing high and swing low. It is important that traders should check whether the point identified by the indicator is an actual swing high or swing low. If not, then we could adjust the number of bars on “Bars Back” variable. Traders should also modify the “High to Low” variable depending on the direction of the trend the indicator identifies.
How to use the Auto Fibonacci Indicator for MT5
The Auto Fibonacci tool should be used just as the Fibonacci Retracement Tool would be used. Traders can use it to anticipate pullbacks at levels 38.2, 50, and 61.8 for higher accuracy. Among the three, the 61.8 ratio is considered as the golden ratio.
Traders could wait for a reversal candlestick pattern to occur in the area of these levels indicating the end of the pullback phase. Traders could also simply place limit entry orders at either levels 50 or 61.8 in order to enter the market at a better price. However, this would not be as accurate.
Buy Trade Setup
When to Enter?
The Auto Fibonacci should plot a retracement tool which connects from the swing low to the swing high. Set the “High to Low” variable to false. Set a Buy Limit Order at 61.8 and set the stop loss below 100.
When to Exit?
Set the take profit target at 0.
Sell Trade Setup
When to Enter?
The Auto Fibonacci should plot a retracement tool which connects from the swing high to the swing low. Set the “High to Low” variable to true. Set a Sell Limit Order at 61.8 and set the stop loss above 100.
When to Exit?
Set the take profit target at 0.
Conclusion
Trading pullbacks using the Fibonacci Retracement Tool is a trading technique that many professional traders use. However, many new traders are not that confident trading this technique. This indicator can help traders identify the swing points and trend direction objectively.
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