Fibonacci Retracement Mean Reversion

Entry Logic

• Long Entry: In an uptrend, price pulls back to the 50% or 61.8% Fibonacci retracement level.
• Short Entry: In a downtrend, price rallies to the 50% or 61.8% Fibonacci retracement level.
• Confirmation: A reversal candle at the Fibonacci level.
• Timeframe: 60-minute.
• Location: At a key Fibonacci retracement level.
• Market Condition: Trending.

Exit Logic

• Profit Target: The previous swing high (for longs) or swing low (for shorts).
• Scaling Out: No.
• Trailing Stop: A bar-by-bar stop.
• Signal Failure: Exit if price closes through the 78.6% retracement level.
• Opposite Signal: Not applicable.
• Time Expiration: 8-10 bars.
• Momentum Loss: Exit if the bounce/rejection stalls.

Stop Loss Structure

• Hard Stop: Just beyond the 61.8% retracement level.
• Soft Stop: A close through the 61.8% level.
• Max Dollar Loss: $800.
• Max Percent Loss: 1.6%.
• Structural Stop: Beyond the swing low (for longs) or swing high (for shorts) that the retracement is being measured from.

Risk Management Framework

• Risk Per Trade: 1%.
• Daily Limit: 2 trades.
• Weekly Limit: 4%.
• Max Drawdown: 15%.
• R:R Requirement: 2:1.

Position Sizing Model

• Sizing Approach: Fixed fractional.
• Volatility Adjustment: No.
• Conviction Sizing: No.
• Scaling In: No.
• Scaling Out: No.

Trade Filtering

• Market Conditions: Strictly trending markets.
• Setups: Look for a clean pullback to a key Fibonacci level.
• Instruments: Any liquid instrument.
• Time Restrictions: None.
• Chop/News Avoidance: Yes.

Context Framework

• Trend Direction: The trade is with the dominant trend.
• VWAP Relationship: Not a primary factor.
• MA Relationship: The Fibonacci level often aligns with a key moving average.
• Range Location: Not a range-based strategy.
• Higher TF Alignment: The higher timeframe should confirm the trend.

Trade Management Rules

• Breakeven: After a 1R move.
• Scale Out: No.
• Add Size: No.
• Fast vs Slow Moves: Works for both.

Time Rules

• Optimal Window: Any.
• Times to Avoid: Low-volume periods.
• Session Notes: A classic trend-following entry technique.

Setup Classification

• A+ Setup: A pullback to the 61.8% level that aligns with a key support/resistance level and a moving average.
• A Setup: A pullback to the 50% or 61.8% level with a reversal candle.
• B Setup: A pullback that is choppy and does not hit a key level cleanly.
• C Setup: A pullback that slices through all the Fibonacci levels.

Market Selection Criteria

• Instruments: Any.
• Volume: High.
• Volatility: Moderate.

Statistical Edge Metrics

• Win Rate: 50%.
• Avg Win: 2.5R.
• Avg Loss: 1R.
• Profit Factor: 1.75.
• Expectancy: +0.375R.

Failure Conditions

• Market Conditions: A trend reversal.
• Specific Scenarios: When a pullback turns into a new trend in the opposite direction.

Psychological Rules

• Discipline: Must be patient and wait for the price to come to your level.

Advanced Components

• Regime Detection: Use a trend filter to confirm the trend.
• Filters: Look for confluence with other technical indicators.
• Correlation: Be aware of the broader market trend.
• MTF Alignment: The daily and weekly charts should confirm the trend direction.

Location

• Strongest: In well-established, orderly trends.
• Weakest: In choppy, sideways markets.