About this video

• Video Title: Not All Fibs Are Equal: How I Read Ranges and Time Entries With Accuracy
• Channel: ZKE
• Speakers: Not specified in the transcript
• Duration: 38:23

Overview

This video explains how to accurately draw and interpret Fibonacci retracement levels in trading. It emphasizes understanding market direction (bullish or bearish) to correctly apply Fibonacci tools, differentiating between bullish and bearish Fibonacci templates. The presenter demonstrates how to use Fibonacci levels in conjunction with price action and ranges, showing various trading scenarios, entry points, and risk management strategies. The video also addresses common mistakes and helps viewers understand why certain trades succeed or fail.

Key takeaways

• Direction is Crucial: Always determine if the price is bullish (going up) or bearish (going down) before drawing Fibonacci levels. This dictates whether to use a bullish (low to high) or bearish (high to bottom) Fibonacci template.
• Multiple Fibonacci Applications: Fibonacci levels can be drawn from different swing highs and lows, accommodating various trading styles such as swing trading, day trading, or scalping.
• Ranges Within Ranges: The concept of nested ranges is introduced, where smaller ranges exist within larger ones, allowing for multiple Fibonacci applications on different scales.
• Trading Levels: Key Fibonacci levels for trades are the 618, 382, 236, and 50%. The spaces between these levels are also important.
• Identifying Rejection Zones: The most significant rejections at specific price levels often indicate where future price action will react. These levels can be identified by looking at past price action (wicks, highs, lows) that align with Fibonacci levels.
• Mechanical Trading: The video advocates for a mechanical approach over intuition, emphasizing consistent application of rules and systems to achieve profitable trading outcomes.
• Trade Validity: A good trade is determined by the reaction at the entry level, not solely by whether the stop loss or take profit is hit. Subjectivity in trade evaluation should be minimized.
• Pre-Market Design: The presenter's strategy involves marking up charts and drawing Fibonacci levels beforehand ("pre-market design"), allowing for consistent trading without constant chart re-evaluation.

Traders can identify significant rejection zones by looking for areas on the chart where Fibonacci levels align with historical price action. Specifically, they should examine past highs, lows, and wicks that have caused price to reject or reverse at a particular level. When a Fibonacci level coincides with these historical price points, it suggests a strong potential for future rejections or continuations. The video emphasizes that the fibonacci levels are there first, and price action then aligns with them, but it is the historical price action itself that confirms the significance of a fibonacci level as a rejection zone.

Here's a step-by-step process for mechanical trading based on the video's teachings:

1. Determine Market Direction:

   • Identify if the overall market trend is bullish (price moving up) or bearish (price moving down). This is the foundational step.

2. Draw Fibonacci Levels:

   • Bullish Trend: Draw the Fibonacci tool from a significant swing low to a significant swing high.
   • Bearish Trend: Draw the Fibonacci tool from a significant swing high to a significant swing low.
   • Ranges: Recognize that multiple Fibonacci levels can be drawn within nested ranges (ranges within ranges) depending on the trading timeframe and strategy (e.g., for swing trading, day trading, scalping).

3. Identify Key Tradeable Levels:

   • Focus on the main Fibonacci retracement levels: 236, 382, 50%, 618, and 786.
   • Understand that these levels, especially when aligned with historical price action (previous highs/lows/wicks), represent potential areas of support or resistance.

4. Identify Trade Opportunities (Entry Model):

   • Breakouts and Retests: Wait for price to break through a Fibonacci level and then retest it. The direction of this break and retest should ideally align with the overall market direction.
   • Specific Level Entries: Take trades at specific Fibonacci levels (e.g., buying at the 618 or 786 in an uptrend, selling at the 236 or 382 in a downtrend).
   • Confluence: The video stresses that Fibonacci levels are a confluence tool, not a standalone signal. An entry is only valid if it aligns with the overall market direction and has confirmed price action reactions.

5. Implement Risk Management (Stop Loss Placement):

   • Initial Stop Loss: Place stop losses above the most recent swing high (for sells) or below the most recent swing low (for buys) when entering a trade.
   • Fibonacci-Based Stop Loss: In some cases, a stop loss can be placed beyond the next significant Fibonacci level or above/below a specific Fibonacci level (e.g., above the 50% space for a buy trade).
   • Mechanical Repetition: Be prepared to take the same trade setup repeatedly off the same level if it continues to provide valid entries, even if previous attempts resulted in a stop out, as long as the underlying conditions (market direction, level support/resistance) remain valid.

6. Determine Take Profit Targets:

   • Previous Fibonacci Levels: Target previous Fibonacci levels that have not yet been retested (e.g., if buying at the 618, target the 382 if it hasn't been retested).
   • Risk-to-Reward Ratios: Aim for specific risk-to-reward ratios, such as 1:2 or 1:3.

7. Understand Trade Failures and Confirmations:

   • Directional Bias: If a trade fails, analyze if it was because the directional bias was violated or if price simply hit a tight stop loss.
   • Market Structure: Pay attention to breaks of swing lows (indicating sellers taking control) or failures to break swing highs (indicating buyers weakening).
   • Discount/Premium: Understand that if price hasn't reached a "discount" (lower prices in an uptrend) or "premium" (higher prices in a downtrend) zone, it still has room to move in that direction. Trades taken against this principle are more likely to fail.
   • Retest Requirement: If price makes a significant move (e.g., breaks a key low in a downtrend), it often needs to retest a Fibonacci level (like the 236) before continuing. A trade without this retest might fail.

8. Adaptation and Continuation:

   • If price moves to the opposite extreme of the Fibonacci levels (e.g., breaks past the 786 in a downtrend), the perspective shifts, and buying opportunities become prioritized.
   • Continue to apply the mechanical rules consistently, trusting the system until price action clearly indicates a change.