I try to keep an eye on the trading systems which are being discussed on various Forex forums around the web. Most of what you can find is junk, but sometimes even the junk systems help you to think about things and maybe learn something. Sometimes you even pick up on a few nuggets of gold. A system I was looking at today is the dynamic Fibonacci grid system and it looked interesting enough to me to prompt me to perform a little test. Firstly, a few words about how the system works. What attracted me was that it isn’t a mindless system: the community talks a lot about how you should be trading the Forex currency pair that is at the heart of the market’s interest on any one day. This is music to my ears.
Although the words “Fibonacci” and “grid” are both in the title, the system truly has nothing to do with either concept (well, maybe a little to do with Fibonacci). It is based mostly upon simple moving averages, although many of the numbers used in calculating the simple moving averages are Fibonacci numbers. The way it works is this: the graphical interface takes a price feed from a currency pair, indicating the price and the position of the following moving averages on four different time frames (H1, H30, H15, M1):
21 sma
34 sma
55 sma
75 sma
100 sma
144 sma
233 sma
The price remains in the middle of each of the four indicators, and horizontal lines show where each of the moving averages listed above sits relating to the current price in each time frame. The indicators look a little like speed dials, and they also show the distance in pips from the current price to each of the moving averages. There are all kinds of trades you can try to take using this strategy, but the basic idea is to look for trends that have room to run on all four of the time frames before they hit one of the moving averages.
I ran a fast test on the 1-hour time frame on EUR/USD, to see if it works as a trend following strategy. Surprisingly it did: if a 1-hour candle closes above all the moving averages, it will on average move up a further fraction of a pip over the subsequent hour; if it closes below all the moving averages, then down a fraction of a pip. Note that the EUR/USD usually moves with slower immediate momentum than other major currency pairs, so if the result is positive on this pair, it would probably be at least a little better on other major currency pairs.
It is not a bad intraday (day) Forex trading strategy so if you are looking for one, it could be worth checking it out.