Forex Strategy: Fibonacci Daily Pivot Trading Strategy

Investing in Financial Markets and Forex Update: The Fibonacci daily pivot strategy is a popular day trading tactic used mostly by Forex traders. As with any other trading strategy, this system can have many interpretations, so feel free to add or eliminate factors to your liking.

This strategy utilizes the Fibonacci retracement tool in addition to the daily central pivot level. Though other tools and indicators can be added for confluence, such as the Fibonacci extension, Average True Range (ATR), candlestick patterns, etc.

For an optimal trade entry, you will be looking for an alignment of the daily pivot point with your preferred Fibonacci retracement level. The most commonly used retracement and extension levels used by traders implementing this strategy are the 38%, 50%, and/or 62% levels.

First, draw your Fibonacci retracement from the high of the previous day to its low if price is currently below the central pivot point. Conversely, draw the retracement from the low to the high if price is currently above the daily central pivot.

To calculate price's current daily pivot point, use the following formula:

Central Pivot Point (P) = (High + Low + Close) / 3

When price aligns itself with the daily central pivot and a strong Fibonacci retracement level, either enter immediately at market, or wait for a confirmation from candlestick formations. While waiting for confirmation reduces risk, some traders prefer to jump into a trading position immediately, so as not miss any sharp, sudden moves.

Use the Fibonacci extension tool to set take profit levels. As for stop loss placement, most veteran traders advise setting your stop loss one level away from the targeted entry. So if you're entering a buy order at the daily central pivot and 50% retracement level, you would set your stop loss at or behind the 38% level.

And that's really all there is to the Fibonacci daily pivot strategy. Yep, it's really that simple. There's a good reason why many experienced traders love using pivots – they just work.