Lazy Trade Forex Trading Strategy – Version 3

0
816

Lazy Trade Forex Trading Strategy – Version 3

Lately, we’ve exploring the uses of the Heiken Ashi Smoothed indicator and have found several ways in which it can be used and made profitable. We’ve used it with the 200 EMA, which showed us how to catch big waves while trading with the long-term trend. We’ve also used it with the Pivot Point indicator, which also showed us how it could be used in relation to support and resistance levels, just like the way the big boy traders of the institutional prop traders do it.

Continuing further into the use of the Heiken Ashi Smoothed indicator, as part of our Lazy Trade Strategy, we will be looking into its use in combination with the Fibonacci retracement ruler, which is a basic tool in everyone’s MT4 platform.

Just a brief background to those who are not familiar with the Fibonacci retracement ruler and the Fibonacci ratios, the Fibonacci ratio numbers are a set of ratios that was discovered by an Italian mathematician Leonardo Bonacci. He discovered that this set of ratios was found in almost everything in nature, from a snowflake, to the leaves, and even to the proportion of our body. Back in the day, this was magical.

Amazingly, these ratios don’t only apply to nature, but also to trading. Joe DiNapoli discussed the use of the Fibonacci retracements in his book, “Trading with DiNapoli Levels”. Back then, there were no built-in rulers and indicators, so he developed his own programs and did manual computations. His strategy did work and is still being used by many traders today.

The concept of the Fibonacci trading strategy is simple. Measure the length of a thrust during a trending market. At the end of the thrust, price should retrace up to a certain level in the Fibonacci retracement ruler. Usually, it should be either the 38.2, 50, or 61.8 levels, with the 61.8 as the perfect ratio or the “Golden Ratio”. As soon as price retraces to these levels, a reversal candle should appear, which signals the resumption of the trend.

Personally, I find this strategy quite effective. If you’d start reviewing charts, you’d see that in many cases this strategy does work. However, I think using reversal candles alone does not result to high probability trades. There are times when reversal candles would occur on lower Fibonacci levels. Traders using this strategy would then enter trades on these levels, only to find price retrace back deeper at higher Fibonacci levels. Even worse, at times, the trend completely reverses although along the way, several reversal candles are generated, causing many losing trades.

This strategy is aimed at lowering these false signals by not depending on reversal candles alone but using the Heiken Ashi Smoothed indicator to confirm the end of the retracement and the resumption of the trend.

The Setup: Trading Fibonacci Levels with Heiken Ashi Smoothed Indicator Confirmation

Our blank chart without analysis would only have one indicator, the Heiken Ashi Smoothed indicator. The chart should look something like this.

lazy trade forex trading strategy version 3 01

On a bearish trending chart, notice the long streak of red Heiken Ashi Smoothed candles and the retracements represented by the short streak of blue Heiken Ashi Smoothed candles.

If you’d use the Fibonacci retracement ruler, you would notice how the retracement stops at one of the levels before continuing further. The first thrust retraced up to 38.2 before continuing further.

lazy trade forex trading strategy version 3 02

Second thrust again retraced up to 38.2.

lazy trade forex trading strategy version 3 03

Third thrust went deeper to 76.4.

lazy trade forex trading strategy version 3 04

The third was again at 38.2.

lazy trade forex trading strategy version 3 05

Probably, you are getting the idea now. Fibonacci ratios do work.

So, how do we trade this?

Buy Entry:

  • The most recent trend should be bullish.
  • Mark the high and low the recent bullish thrust based on the Heiken Ashi Smoothed indicator.
  • Allow the Heiken Ashi Smoothed indicator to turn red indicating retracement.
  • Observe as price respects the Fibonacci levels.
  • As soon as the Heiken Ashi Smoothed candle turns blue, enter on the close of the candle.

Stop Loss: Set the stop loss a few pips below the Heiken Ashi Smoothed candle.

Exit: Trail the stop loss below the Heiken Ashi Smoothed candle until stopped out in profit.

lazy trade forex trading strategy version 3 06

Sell Entry:

  • The most recent trend should be bearish.
  • Mark the high and low the recent bearish thrust based on the Heiken Ashi Smoothed indicator.
  • Allow the Heiken Ashi Smoothed indicator to turn blue indicating retracement.
  • Observe as price respects the Fibonacci levels.
  • As soon as the Heiken Ashi Smoothed candle turns red, enter on the close of the candle.

Stop Loss: Set the stop loss a few pips above the Heiken Ashi Smoothed candle.

Exit: Trail the stop loss above the Heiken Ashi Smoothed candle until stopped out in profit.

lazy trade forex trading strategy version 3 07

Conclusion

The Fibonacci levels strategy on its own is a working strategy. However, most traders new to it find it hard to identify the correct entry if basing on reversal candles alone. By adding the Heiken Ashi Smoothed indicator as our entry signal, we get to have a higher probability entry. The trade off though is that we are entering a little later than those using price action and candle patterns alone, which gives them the better price.

Another thing to take note of also is that although this strategy works extremely well during trending markets, this strategy would cause a series of losses during ranging markets. To avoid ranging markets, observe if price is trending based on the lows and highs.

It might also be susceptible to long-term trend reversals during extended trends. Avoid trading above the fifth thrust as this might already be an extended trend and could reverse soon.

For those who would want to learn trading Fibonacci levels, this is a good place to start.

Recommended MT4 Broker

  • Free $50 To Start Trading Instantly! (Withdrawable Profit)
  • Deposit Bonus up to $5,000
  • Unlimited Loyalty Program
  • Award Winning Forex Broker
  • Additional Exclusive Bonuses Throughout The Year

Recommended broker

>> Claim Your $50 Bonus Here <<

Click here below to download:

Save

Save



Get Download Access

Get Smarter About Forex Trading Using Indicators

Join 100,000+ subscribers and get our 5 min daily newsletter on what matters in forex.

We do not sell or share your information with anyone.

LEAVE A REPLY

Please enter your comment!
Please enter your name here