This Is the Only Fibonacci Setup You Need — Transcript

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1. 0:00But Fibonacci doesn't stop there. We
2. 0:02have Fibonacci extensions. So instead of
3. 0:04closing here, what if we target one of
4. 0:07the Fibonacci extensions? So I changed
5. 0:09one setting, I ran it again, and I've
6. 0:12been using Fibonacci retracements for
7. 0:14probably longer than almost any other
8. 0:16tool in my trading arsenal. And over the
9. 0:19years, I've tested literally every
10. 0:21single combination you can trade them.
11. 0:23The 38.2, the 50, the 61.8, the
12. 0:27Fibonacci extensions, confluences, trend
13. 0:30lines, moving averages, all of it. And
14. 0:32if I had to delete everything I've
15. 0:34learned about Fibonacci and keep one
16. 0:36simple setup, it would be the one that
17. 0:38I'm going to show you in this video.
18. 0:40Because the biggest problem with
19. 0:41Fibonacci isn't Fibonacci itself. It's
20. 0:44that most traders have absolutely no
21. 0:46idea which retracement is actually worth
22. 0:49trading. Not to mention they don't know
23. 0:51where to draw the Fibonacci retracement
24. 0:53from and to. You can draw the Fibonacci
25. 0:56retracement on almost any move, and
26. 0:58eventually price is going to touch one
27. 1:00of these levels. It doesn't mean that
28. 1:02there's a trade there, but there's one
29. 1:03specific thing I found that can happen
30. 1:06at the 618 retracement that completely
31. 1:08changes how I look at the setup. That
32. 1:11one thing is a hidden RSI divergence.
33. 1:14Now don't worry if you have no idea what
34. 1:16that means, because in about 2 minutes,
35. 1:18this is going to make complete sense.
36. 1:20Let's start with the Fibonacci side.
37. 1:22Let's say price makes a move like this.
38. 1:25We have a clear low, price pushes
39. 1:28higher, and then we get a retracement. I
40. 1:30take my tool from the beginning of that
41. 1:32move to the end of the move. And the
42. 1:34level that I'm interested in is right
43. 1:36here, the 0.618.
44. 1:38Now normally a trader sees price hit the
45. 1:410.618 and thinks, "Okay, buy." I don't,
46. 1:46because there's nothing stopping price
47. 1:47from doing this. The Fibonacci level is
48. 1:50not in itself enough confluence to enter
49. 1:52the trade. I want price to give me
50. 1:54another piece of information, and this
51. 1:56is where the setup gets interesting.
52. 1:58Most traders who know RSI divergence
53. 2:00know the normal version. Price makes a
54. 2:02lower low while the RSI makes a higher
55. 2:05low. That's a bullish divergence, but
56. 2:08that's not what we're looking for. We're
57. 2:10looking for something called a hidden
58. 2:11divergence, and it's basically the
59. 2:13opposite. Watch this. Price makes a low,
60. 2:16it rallies, then pulls back. But the
61. 2:19second low stays higher than the
62. 2:21previous low. That's important. Price is
63. 2:24telling us we're still structurally
64. 2:26bullish. Now look at the RSI. Instead of
65. 2:29RSI making a higher low, the RSI makes a
66. 2:32lower low. So, price makes a higher low
67. 2:35and RSI makes a lower low. That is a
68. 2:38bullish hidden divergence. And the
69. 2:40hidden divergence is different from
70. 2:41normal divergences because we're not
71. 2:43trying to predict a reversal. We're
72. 2:46looking for a continuation. Price has
73. 2:48already moved up, it pulls back,
74. 2:50momentum gets washed out, but price
75. 2:53refuses to make a new low. And now
76. 2:55here's where these two completely
77. 2:56separate ideologies in trading come
78. 2:59together. What happens if the hidden
79. 3:01divergence occurs right at the 61.8
80. 3:04Fibonacci retracement? Now, we have
81. 3:07something completely different. We have
82. 3:09an existing bullish impulse. We have a
83. 3:11higher low, so the bullish structure
84. 3:13hasn't been broken. We've retraced
85. 3:15roughly 61.8%
86. 3:17of the original impulse move, and RSI
87. 3:21has made a lower low. That's the setup.
88. 3:24And that's basically all we're looking
89. 3:26for. Impulse, retracement, 61.8.
90. 3:30Price made that higher low, RSI makes a
91. 3:33lower low, enter a buy. And obviously
92. 3:36this works in reverse as well. For a
93. 3:38sell, price moves down, it retraces back
94. 3:41up to the 61.8, price makes a lower high
95. 3:44while the RSI makes a higher high.
96. 3:46That's a bearish hidden divergence, and
97. 3:48we're looking for the continuation back
98. 3:50down. Once you understand what you're
99. 3:52looking for, these setups become
100. 3:54ridiculously easy to see. But then, I
101. 3:57had another question. Where the hell do
102. 3:59you put the stop loss and the take
103. 4:00profit? And this is where Fibonacci
104. 4:02gives us the entire trade. Let's use
105. 4:04this short setup because it's incredibly
106. 4:06easy to visualize. You can see the
107. 4:07original impulse from top to bottom.
108. 4:10Price retraces approximately 61.8%.
109. 4:13We get a bearish hidden divergence. So,
110. 4:16our entry is around the 0.618
111. 4:18retracement. Our stop loss goes back
112. 4:21here at the beginning of the impulse.
113. 4:23Why is that? Because if price gets all
114. 4:25the way back up here, the idea we're
115. 4:27trading is basically failed. The
116. 4:29original hypothesis is null and void.
117. 4:31And initially, my take profit was
118. 4:33extremely simple, at the bottom of the
119. 4:35original impulse. So, the entire trade
120. 4:37is defined by the same move. Impulse
121. 4:39start equals the stop loss, 618
122. 4:42retracement is your entry, and the
123. 4:44impulse end is your target. Not a random
124. 4:4620 pip stop or a 10 pip stop, no
125. 4:49arbitrary 2:1 risk-to-reward ratio. The
126. 4:52market structure determines everything.
127. 4:54But while I was building this video, I
128. 4:56started wondering, what happens if we
129. 4:57use Fibonacci for the target, too? And
130. 4:59that's where things got a little bit
131. 5:01ridiculous. Because obviously, I can sit
132. 5:03here and cherry-pick beautiful examples
133. 5:05all day. That proves absolutely nothing.
134. 5:07So, instead, I coded the rules, and I
135. 5:10turned the entire thing into an
136. 5:11indicator. It automatically looks for
137. 5:13hidden RSI divergences occurring around
138. 5:16the 61.8 retracement. And then it finds
139. 5:18one, and marks up the setup. So, here is
140. 5:20a bearish example, and here is a bullish
141. 5:22one. And then when I put this up on the
142. 5:24chart, I genuinely thought something was
143. 5:25screwed up because I started scrolling
144. 5:27backwards, and these setups looked
145. 5:29really [ __ ] good. One winner,
146. 5:31another, another, another. I kept
147. 5:33scrolling, and I could barely find a
148. 5:35loser. Now, obviously, that's where you
149. 5:37have to stop yourself because visually
150. 5:39scrolling through the chart is probably
151. 5:40one of the easiest ways to convince
152. 5:41yourself you've invented the Holy Grail.
153. 5:43So, I converted the indicator into an
154. 5:45actual TradingView strategy. Now,
155. 5:47TradingView has to execute every single
156. 5:49signal mechanically. No cherry-picking.
157. 5:52None of that, "Well, I probably wouldn't
158. 5:53have taken this one because blah blah
159. 5:55blah."
160. 5:56If the condition exists, it trades it.
161. 5:58And here's where the experiment went
162. 6:00into somewhere that I wasn't expecting.
163. 6:03Initially, I tested both buys and sells,
164. 6:05and the results weren't amazing. Around
165. 6:07a 48% win rate. Profitable, but nothing
166. 6:09crazy. Then I separated the two
167. 6:11directions, and something immediately
168. 6:13jumped out. Short setups were massively
169. 6:16outperforming the longs in this
170. 6:18particular setup. So, I switched the
171. 6:20indicator to do shorts only. Same setup,
172. 6:22same entry, same stop, nothing changed.
173. 6:24And the win rate roughly jumped to 64%.
174. 6:27That got my attention. But then I
175. 6:29started playing with the take profit.
176. 6:30Remember, originally, our take profit
177. 6:33point was at the end of the impulse
178. 6:35move. But Fibonacci doesn't stop there.
179. 6:37We have Fibonacci extensions. So,
180. 6:39instead of closing here, what if we
181. 6:42target one of the Fibonacci extensions?
182. 6:45So, I changed one setting. I ran it
183. 6:46again, and I got an 80% win rate. Eight
184. 6:50winners and two losers.
185. 6:52Profit factor, eight. Now, before
186. 6:54somebody takes that information, starts
187. 6:56clipping it, and selling their own
188. 6:57course, there's a gigantic problem here.
189. 7:00It was only 10 trades. That is nowhere
190. 7:03near enough data for me to tell you that
191. 7:05this is an 80% win rate strategy. So,
192. 7:08just to clarify, I'm not saying that
193. 7:10it's good. In fact, if I kept changing
194. 7:12settings until I found the prettiest
195. 7:14backtest possible, I'd probably be
196. 7:16overfitting the strategy. But something
197. 7:18else happened that I thought was really
198. 7:20interesting. I pushed the target
199. 7:21slightly further, and I tested an even
200. 7:23further Fibonacci extension. Same stop,
201. 7:26same trades, I didn't touch anything.
202. 7:28Same win rate, eight out of 10. But now
203. 7:31we're extracting more funds from a
204. 7:33functional, better, larger take profit,
205. 7:37giving us a higher profit factor. And
206. 7:39then I went to the extreme and pushed it
207. 7:41out to a full minus one Fibonacci
208. 7:45extension. And finally, the strategy
209. 7:47broke down. The win rate dropped to like
210. 7:4936% and I actually love that result
211. 7:51because it shows that the consistency of
212. 7:54that full Fibonacci extension is
213. 7:57not realistic. It's kind of the
214. 8:00overshoot a logical target fallacy. But
215. 8:03what I'd like you to do in the meantime,
216. 8:05while I keep developing this, is go on
217. 8:08your charts and backtest continuation
218. 8:11trades. Start training your eyes to
219. 8:14identify hidden divergences. Hidden
220. 8:17divergences are continuations. And one
221. 8:20of the number one rules of trading that
222. 8:22has never changed ever since the
223. 8:24beginning of time is the fact that the
224. 8:26trend is your friend. If you are trading
225. 8:29with the trend, you are swimming with
226. 8:31the current. You're not fighting the
227. 8:33opposite side of the market. And it's
228. 8:35the most easy way for me to explain
229. 8:37trading in an analogy.
230. 8:39>> [snorts]
231. 8:39>> Let's say a PlayStation 5 is $500. And
232. 8:42then it goes on sale 61.8%.
233. 8:46That makes that PlayStation $191.
234. 8:50And you cannot tell me that everybody on
235. 8:53planet Earth who wants a PlayStation 5
236. 8:55would not buy one for $191.
237. 8:58That's the psychology of it. Price rips
238. 9:01up, too expensive, price comes back
239. 9:03down. Wow, that's a slamming deal, buy,
240. 9:07price continues. The thing that I want
241. 9:09you to focus on the most is actually
242. 9:11doing this because it would be pointless
243. 9:14for you to sit down and create your own
244. 9:17indicator if you do not know what you're
245. 9:20looking for. If you can't personally
246. 9:22identify it yourself, you can't train an
247. 9:26AI to write the script for you and you
248. 9:28can't write it yourself unless you have
249. 9:30these concrete rules. And this is going
250. 9:33to make you a much better trader because
251. 9:36you're seeing the subtext of what price
252. 9:40movement is telling you. It's called a
253. 9:42hidden divergence for a reason. [ __ ]
254. 9:45hard to see. If you guys enjoyed this
255. 9:46video and you want to see more videos
256. 9:48about Fibonacci, let me know in the
257. 9:50comments section down below. Thank you
258. 9:52so much for watching. Make sure to share
259. 9:54this video with your friends and we will
260. 9:56see you in the next one.