Fibonacci Retracement Trend Pullback

How the rule works

The difficult part of Fibonacci testing is defining the swing before seeing the outcome. This version fixes an algorithm, tie rule and minimum impulse size. Retracement ratios alone provide no evidence of a forecast edge; changing anchors after an adverse move would make an attractive illustration impossible to reproduce.

Setup

• Use bars [2]…[41], excluding the candidate signal. Bull trend requires EMA50[1] > EMA200[1]. Find the lowest low in that window (ties: most recent); among later bars up to [2], find the highest high (ties: most recent). Both anchors must exist and high−low >= 2×ATR14[2].
• For a bear trend EMA50[1] < EMA200[1], find the highest high in [2]…[41], then the lowest low chronologically after it and no later than [2]. Apply the same distance test and tie rule. Freeze the resulting anchors before considering bar [1]; never move them during a trade.
• For upward swing L to H, retracement level f is H−f×(H−L). For downward swing H to L, it is L+f×(H−L). Use f = 0.382, 0.500, 0.618 and 0.786.

Indicators

• EMA(50), Close
• EMA(200), Close
• ATR(14)
• Custom Fibonacci levels

Long entry

• Buy next ask when bar [1] overlaps the 50%–61.8% upward-swing retracement zone, closes above the arithmetic midpoint of that zone, closes above its open and above EMA200.

Short entry

• Sell next bid when bar [1] overlaps the 50%–61.8% downward-swing retracement zone, closes below the arithmetic midpoint of that zone, closes below its open and below EMA200.

Stop loss

• Long SL = min(signal low, upward 61.8% level) − 0.35×ATR14[1]. Short SL = max(signal high, downward 61.8% level) + 0.35×ATR14[1].

Exit

• Use one full-position target: the nearer profitable price of the frozen impulse extreme and 2R. Skip if the impulse extreme is already behind entry. This version has no unspecified partial exit.
• Exit long after a completed close below the frozen 78.6% level, short after a close above it, at the next quote. Time exit: 15 completed H4 bars.

Risk and position size

• 0.5% equity; split position only if broker supports partial close and both legs have stated fills.

Costs and execution

• Model spread, commission, slippage, swap and broker timezone; no idealized fill at a drawn level.

When the method can fail

• Swing algorithms can change when new bars arrive; freeze the swing at entry. Skip event windows.

Worked example

• Hypothetical upward impulse L=1.0800 to H=1.1000 creates 50%=1.0900, 61.8%=1.08764 and 78.6%=1.08428. Signal low 1.0880, bullish close 1.0895 and ATR 0.0020 can qualify. At entry 1.0896, SL=min(1.0880,1.08764)−0.0007=1.08694; the nearer 2R target is 1.09492.

Historical test results

No tested pair meets the complete research-screen criterion. Positive cells alone do not qualify the strategy.

18 mechanical runs across 3 pairs on H4. Decisions use completed strategy bars; fills use native ICMarketsEU-Demo M15 Bid candles with explicitly modelled costs. Full window: 1 January 2025–18 September 2026. Each row starts with an independent USD10,000 account.

Interpretation: these are mechanical bar-model tests, not verified real-tick or live performance. Price rules were held fixed; subjective market-quality exclusions remain outside the mechanical model. Strategy adaptation requires a new test.

Download all test metrics and assumptions (JSON) · Download simulated trade logs and reproducible research code · Broker commission and swap documentation

Execution conventions

• Bar [0] is forming; [1] is the most recently completed bar. Unless explicitly stated otherwise, indicators use Close with zero plot shift and signals use completed bars. EMA is exponential, SMA is arithmetic and MT5 ATR is its native true-range average. Use at least 300 completed warm-up bars; a longer rule-specific requirement takes priority.
• A close-based signal is executed at the first available quote after the close, never retrospectively at the signal close. Buy at ask, sell at bid; close longs at bid and shorts at ask. A standing stop or target can fill within a bar. A gap through a stop fills at the first executable price, which can be worse than the stop.
• R means the initial entry-to-protective-stop distance, fixed at entry. Convert that distance into account-currency loss using the symbol tick size and loss-side tick value. Lots = cash risk / loss per lot, rounded down to the broker volume step. Round prices to the trade tick and recheck risk plus minimum stop/freeze distances before submitting. Budget commission and slippage separately; skip if minimum size exceeds the risk limit.
• Use one position per symbol and no averaging down. A trailing stop only tightens after a completed bar and becomes active on the next quote. The entry bar is holding bar one; a time exit executes on the quote after the specified holding bar closes. When a hard stop and a close-based exit compete, the stop already active takes precedence. With OHLC-only data, assume stop before target if both can occur in one bar; tick data is needed to resolve the order.
• The article defines the price rule. Any discretionary news exclusion changes the tested variant and must be recorded in advance. Map broker timestamps to the named London/New York time zone using historical daylight-saving offsets; do not assume a fixed UTC offset. Include spread, commission, slippage, overnight financing and triple-swap days in a profitability test.

Adapt and test your version

• Treat these inputs as a reproducible starting specification. Choose a currency pair, session and holding period that match the time you can monitor the market, then record any changes to indicator periods, thresholds, stop distance or exits as a new version.
• Change one hypothesis at a time. Reserve a later period and additional pairs for evaluation before looking at their results. Include your account’s actual trading and financing costs, compare small parameter changes, and forward-test on demo. A selected profitable window does not validate the strategy or its modified version.

Reproduce the chart in MT5

• Open EURUSD on H4. Add the indicators listed above through Insert → Indicators; use Close and zero shift unless a different setting is specified. The Data Window displays exact values for the selected completed candle.
• Compare the signal candle with the required earlier bars before moving forward. Use the crosshair to read prices and times. For custom channels, session levels or Supertrend, reproduce the formula in this guide and check the calculation before relying on an external indicator.
• Draw entry, initial SL and target only after a candle has satisfied every condition. Label planned levels as plans; they do not demonstrate a historical fill. The featured chart is genuine historical MT5 context and is not a trade-performance report.

Sources

• Fibonacci Retracement — MT5 drawing-tool availability.
• Moving Average — EMA trend filter.