Today, I wanted to discuss a strategy that I like to use in sideways, churning markets. It’s called the Triple Fib Strategy and it uses the power of Fibonacci combined with the power of adding to positions (if you do it right).
If you are a trend trader like me, you typically don’t like to see sideways market conditions on the 4hr and Daily charts. But, there are some strategies that can work effectively within those type of market conditions. The triple fib strategy is one of them, and in this brief article, I want to give you a guide on how to utilize it.
First, it’s meant for Sideways Markets.
There are many ways to define sideways conditions, but the easiest is a simple eye test on the 4hr and Daily charts.
If there are lots of candles, but the price hasn’t changed much, you’re probably in a sideways market 😉
Basically, if you can define a top and a bottom within the last few weeks to few months and there are many other highs/lows between the top and the bottom, we consider that a sideways market condition.
Here is an example:
You can see I have highlighted the “big” top and the “big” bottom and within that range there are many other tops and bottoms. So, this would be an opportunity to employ the triple fib strategy.
It’s a very basic approach that allows you to take advantage of a sideways market without having to have perfect time.
After finding a suitable market…
Second, zoom into a 30 or 60 minute chart.
Either time frame is suitable, but I prefer the 30m as it gives me a slightly more detailed look at the price action involved.
Moving to a 30 minute chart in the above example, here is what we see:
Third, identify an impulse move within the sideways range.
What we are looking for is any type of quick price action movement. And, of course, since I am using this as my example, we have one here 😉
The idea is that the market is moving in very churning, measured moves. So when we see a spike like this, it is very likely that we’ll get a retracement, but it’s very unlikely that we will get a full reversal in this type of market movement.
That sets up for a great opportunity to BUY into the entrancement because we knows it’s unlikely to plunge beyond the lows.
But there is one problem when it comes to buying a retracement: Timing.
No one knows how long the retrace will last so it is difficult to know when you should begin jumping into a position even if you’re confident it’s going to move up. Getting the direction right is only half the battle.
That’s why I like the triple fib method.
I use Fib levels to set up this entire trade so that I can make money WITHOUT perfect timing.
Fourth, Set Up your Trade
Setting up this trade is REALLY easy.
All you need to do is use the Fib tool to draw a retracement from the bottom of the spike to the top of the spike.
Then you split your position size into 3 separate units (hence the “triple) and place one unit at the .382, one unit at the .500 and one at the .628 with a stop loss below the .786 and a target at the .236.
It is probably easier to see visually, so let me give you the hindsight version of this last trade:
For info on how to size your trades or set up risk parameters when adding to a position, I recommend using the same process as I do in my Stackable Carry Trade Report.
I hope this little strategy article was helpful for you and I look forward to hearing if you make any profits from it!