Best Forex Indicator Combination: Fibo and Stochastic

Fibo and Stochastic is a technical strategy composed of two indicators Fibonacci Retracements and Stochastic Oscillator with the main purpose to catch the breakout of the high/low of the previous day. In this article, you will find out how to apply this strategy correctly in order to collect high-probability trading signals from the Forex market.

How to Combine Different Indicators


The Fibo Stochastic is literally a with-momentum strategy. With a very simple structure, this strategy is relatively easy-to-use and suitable for traders who love the simplicity and effectivity. The Fibonacci Retracements are used here to spot trading signals, take-profit and stop-loss levels. Meanwhile, the Stochastic Oscillator – a very adept momentum measurer developed by Dr. George Lane in the late 1950s – has the responsibility to confirm the
possibility of the detected trading opportunities. Trading with the Fibo Stochastic is conducted on the 1-hour chart and should be used on the British Pound – Greenback or the British Pound – Japanese Yen (GBP/USD and GBP/JPY).

Please note that the Stochastic Oscillator is set with the parameters of 14-3-3, and we need only the -%K line. The %D line can be colored in the screen’s color.

In the twelve months to November 2017, the Fibo Stochastic has generated more than 3000 pips, with its win ratio confirmed at 81.46%.

Let’s take a look at some practical examples to see how this technical strategy works.

Fibonacci Retracement Formula:
If the price rises from $10 to $15, and these two prices levels are the points used to draw the retracement indicator, then 23.6% level will be at $13.82 ($15 - ($5 x 0.236)) = $13.82. The 50% level will be at $12.50 ($15 - ($5 x 0.5)) = $12.50.

How to use Combination in Forex Trading


To start seeking trading occasions, you need to establish the Fibonacci levels on the chart. You can do so by manually drawing the indicator from the low to the high of the previous trading day. Please also add the 161.8% and 261.8% thresholds in order to define the take-profit points.


A bullish signal is identified when the following conditions are satisfied:

  1. Prices break above the maximum of the previous trading day;
  2. The Stochastic Oscillator crosses above 80.

Best Forex Indicator Combination: Fibo and Stochastic


Conversely, a bearish signal is defined when the following requirements are met:

  • Prices break below the minimum of the previous trading day;
  • The Stochastic Oscillator crosses below 20;
  • Only one position should be opened at a time;
  • Don’t open any orders until the candle of confirmation is fully closed;
  • The stop-loss is set just above the maximum of the current day given a sell order, and is set just below the minimum of the current day given a buy order. You should move the stop-loss to breakeven when the 161.8% level is reached;
  • The take-profit should be set at the 161.8% or 261.8% levels, depending on your trading approach (tight or loose trading approach);
  • The maximum risk for each transaction shouldn’t be more than 2% of your total balance.


  • If you like this strategy, you might also be interested in this Double Parabolic SAR Strategy

    Pros and cons of the Combination Strategy


    Pros:
    • Enables you to follow rising force;
    • Offers signals with clearly defined settings;
    • Very simple and easy-to-use;
    • Engenders high-quality signals;
    • Requires no custom indicators.

    Cons:

    • Requires a high level of patience;
    • Necessitates you to eye the platform to spot trading opportunities.

    Conclusion


    The Fibo Stochastic is a very simple but effective technical strategy that takes advantage of breakouts of the previous day’s high or low with rising momentum to find out high-probability entries. Since it’s used on the 1-hour chart, this strategy is highly suitable for intraday traders. With a lot of advantages mentioned above and a considerable win-rate, we believe you can make stable profits in the long run given using the Fibo Stochastic under strict discipline. Besides, don’t forget to apply money and psychology managing methods strictly as there’s nothing called perfect in the trading world.
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