High Probability Trading
This tutorial is provided by Neal Hughes at FibMaster
Even traders with limited experience start to realize that
we are not trying to capture every market move. We want to improve
our odds and reduce our frustration by filtering, for high-probability
The combination of trend and Fibonacci techniques can provide
powerful signals for higher probability trading. We already
know that trend-lines have some validity, and so do Fibonacci
levels. Combine the two, to improve your chances.
The following charts are the USD/British Pound GBP. First,
the daily chart as of October 5th 2005. I have drawn a red down-sloping
trend-line joining the two recent swing highs.
The chart has moved down since early September , making a down-trend
of consecutive "waves" with lower swing highs and lower swing
lows. There were several opportunities to take advantage of
the down-move. In this tutorial we will focus on the October
In a down-trend we want to short those swing highs, and take
profits on swing lows. We don't want to short every time we
**think** we have a swing high. If you have tried that, you
know about whipsaw and fake-outs already haha. We only want
the best trades, those which are more likely to succeed. So
how do we choose an optimum entry point?
Our odds are improved if we have a swing high near a down-sloping
trend-line (in red on the chart). Markets tend to reverse at
Fibonacci levels. So if we have a significant resistance level
near a trend-line we have an even better chance of success.
The next chart shows the GBP with Fibonacci resistance levels.
Notice the "SK Resistance" level. This represents an area of
significant resistance, with a higher probability of a reversal.
If you are new to Fibonacci, those studies look like a confusing
series of colored lines. Learning how to use these Fibonacci
studies, and which of them are stronger (higher probability),
is really easy! I have made two video seminars that explain
That "SK Resistance" level, coinciding with a trend-line is
an optimum shorting zone. If the market reaches that area (we
can't be sure it will), and if the market resists there, we
want to take a short position. Once the resistance materializes,
it will be difficult for the market to move against us.
Most of us are not trading the daily chart, but we can use
the longer-term charts to find **powerful** trends and Fibonacci
levels. The next chart is a 60-minute chart. I choose 60-minutes
because it clearly shows when resistance has materialized. You
may prefer a 30 minute or 5 minute chart.
The following 60-minute chart shows how the Pound rallied to
the SK resistance level, and the trend-line. It rallied over
those, tested them briefly, then retreated. There are several
ways to determine whether resistance has materialized. I have
some very powerful techniques for that purpose. However we want
this tutorial to focus on some basics. So for now we will use
the obvious breaking of the rising trend as our trigger.
During that rally upward, the 60-minute chart has a series
of higher swing highs and higher swing lows. Once we broke the
highest swing low (see the last bar on the above chart), we
know that up-trend has expired. So we want to start shorting
rallies and take profits on dips as shown on the next chart
Notice how the market broke down, and never looked back! That
is what happens when you combine trend-lines with Fibonacci
techniques. The best trades go your way and keep on going. That
is a characteristic of higher-probability trading.
If this tutorial makes sense, you are ready for my Fibonacci
Trading videos! My two introductory videos are inexpensive,
and they receive glowing reviews almost daily. You can take
your trading to the next level, bring these powerful techniques
to your trading just by watching my video seminars. FibMaster.
here to go to fibmaster.com now