How do you know when the price will move quickly or choppily?
Most traders, unfortunately, don’t know and the problem is that they either trade the trend at the wrong spot or trade reversals too early.
This article explains how traders can identify when the price is likely to behave correctively (choppy) or impulsively (quickly), plus it also shows where key targets are located… all of that is done via our Wizz tool.
Predicting Targets and Price Action
Price action will always move impulsively or correctively – it is mostly the heartbeat of the market. The slow and quick movement is a natural rhythm, like waves hitting the beach or shore.
Now you might be wondering, how is it possible to predict choppy or impulsive price action?
Yes, we use the Fibonacci sequence levels for understanding the phase of price movement.
Almost all traders are aware of the Fibonacci levels, ratios, extensions, and targets. However, we apply the sequence levels themselves, rather than the ratios. We use them for counting pips.
Here is a simplified version how the idea works (more details in the next paragraph):
- Price is close to top/bottom: high chance of correction.
- Price has traveled some distance: high chance of impulse.
- Price has moved far from top/bottom: high chance of correction.
What are the main benefits? Knowing when the price is expected to move quickly or slowly is a massive help for our trading:
- Identifies expected impulsive or correction:
- We can exit for small or average wins when the price is in the corrective phase.
- We let winners run when the price is in an impulsive phase.
- We are warned when trends become overstretched.
- Aims for better targets and stop losses:
- We can find better targets for our take profit levels.
- We find better stop losses based on these key Fib sequence levels.
Yes, the Fib sequence levels help us find the best targets and know what type of price action to expect. The idea is a must for any trader who wants to understand the chart in more depth.
Effectively it allows traders to let winners run and cut losses short. It is a key concept in trading but very few explain how to implement this on real charts.
Simple Method Offers Huge Shortcut
Before we explain the details, it’s good to know that it’s a simple concept that all traders can do manually without any external help:
- You need to find a top or bottom nearby.
- Then calculate how many pips price has moved away from that top or bottom (distance between current price and top or bottom) – our EA does this automatically (see below).
- Based on that distance, we can estimate whether the price is more likely to move impulsively or correctively – see below.
We figured out that price action tends to move correctively or impulsively based on the distance that price has moved. The following is valid for 1 (and 4) charts, measured from current price to top or bottom:
- Anything between 0 and 144 pips: corrective phase.
- Between 144 and 377 pips: impulsive phase.
- Between 377 and 610 pips: could be both impulsive and corrective (depends on the pair).
- More than 610 pips: corrective phase.
How to Find the Wide Open Chart Spaces
So where is the wide open space on the chart? Where could you expect the price to move fast and quickly to target?
The key zone (for 1&4 hour charts) is when the price is in between 144 and 377 pips (for some pairs like GBP/JPY till 610 pips)… this is where traders can expect quick price action, which is why we call it “wide open space”.
When the price is in this area, It is beneficial to keep the trade open and aim for higher targets or use a loose trail stop loss on average. Why? Simply because there is a high chance that price will move far and quick.
Then again, we are more careful in other price areas or phases here we will aim for closer targets because the price is either in a corrective mode or is overstretching itself within the trend.
We couldn’t overemphasize the importance of this information for our trading decisions.
Expert Advisor Makes Automatic Calculations
As you can see, the concept itself is simple: we use Fibonacci sequence levels and count the difference between tops and bottoms.
Extra rules: we do have some additional rules that we add besides this main theory. For instance, we restart the Fibonacci sequence counting when price hits or bounces at our long-term moving average, the 144 ema close. And there are other details that go beyond the scope of this introductory article.
EA help: although traders can efficiently use this concept without any tool or external help, we created an Expert Advisor that automatically plots all of the Wizz levels on the chart after you choose the correct starting spot and direction (long or short).
The Wizz tool plots 9 levels and those levels are the same for these time frames:
- 5 to a 30-minute chart
- 1 and 4-hour chart
- Daily chart and higher
On each time frame, the Wizz EA plots these 9 Fib sequence levels… but these distance does change depending on the 3 groups mentioned above.
For the 1 or 4 hour charts the Wizz levels equal these Fib sequence levels:
- Level 1 = 55 pips
- Level 2 = 89 pips
- Level 3 = 144 pips
- Level 4 = 233 pips
- Level 5 = 377 pips
- Level 6 = 610 pips
- Level 7 = 987 pips
- Level 8 = 1597 pips
- Level 9 = 2584 pips
Benefits of using Wizz EA: the Wizz tool just makes it a lot easier to immediately see all the correct levels. It’s much faster in removing them and also adding a new set of levels with each new top or bottom.
To summarize: our analysis of the market structure always starts by using the Wizz EA because it immediately informs us of market phase. Wizz also helps us answer these questions:
- Is the market trending?
- Will it be impulsive or correction?
- Is the trend overstretched?
- What are realistic targets?
- Should I aim for a small or large profit?
- Should I use a trail stop loss to catch a bigger win?
Click here to receive the free version of the Wizz tool from Elite CurrenSea. Alternatively, check with our friends from bestforexbroker.com which brokers offer Fibonacci Wizz Tool by default.
Hope this info will help your trading.
Many green pips,