OPEN-SOURCE SCRIPT
Fibonacci compression
Updated
This script will search x-bars back, if it can find a triangle formation that meets certain Fibonacci ratios.
Based on the trend-based fib extension tool from the first high to the first low and then the 2nd high (in a bullish structure, inverse for bearish), we can predict the take profit levels.
The main target is the 0.618, first take profit is at the 0.236. In a strong trend, one can aim for the 1 fib ratio.
Once the 3 points are known, the script will already plot the take profit levels. It is better to wait until the full pattern develops with a 2nd lower high and a 2nd higher low.
The way I use it, is closing 20% at TP1, 80% of the remainder at TP2 and final close out at TP3.
Stop loss is the red line which will show up after a full pattern is formed.
Plot out the profit levels with the trend based fib extension tool, because once there's a break-out of the pattern, the script won't show the compression any more. (or use the replay button to go back in time to plot it again)
The volume label will appear once there's a divergence between the low and higher low or the high and lower high. It is based on my cumulative volume script. It only works well on timeframes above 4 hour, but volume in favor of a short, doesn't always guarantee a good short setup, so don't take it for granted.
It has around a 30 - 33% chance of hitting your TP2, so make sure the risk to reward is at least 3.
Happy trading!
Based on the trend-based fib extension tool from the first high to the first low and then the 2nd high (in a bullish structure, inverse for bearish), we can predict the take profit levels.
The main target is the 0.618, first take profit is at the 0.236. In a strong trend, one can aim for the 1 fib ratio.
Once the 3 points are known, the script will already plot the take profit levels. It is better to wait until the full pattern develops with a 2nd lower high and a 2nd higher low.
The way I use it, is closing 20% at TP1, 80% of the remainder at TP2 and final close out at TP3.
Stop loss is the red line which will show up after a full pattern is formed.
Plot out the profit levels with the trend based fib extension tool, because once there's a break-out of the pattern, the script won't show the compression any more. (or use the replay button to go back in time to plot it again)
The volume label will appear once there's a divergence between the low and higher low or the high and lower high. It is based on my cumulative volume script. It only works well on timeframes above 4 hour, but volume in favor of a short, doesn't always guarantee a good short setup, so don't take it for granted.
It has around a 30 - 33% chance of hitting your TP2, so make sure the risk to reward is at least 3.
Happy trading!
Release Notes
Added an extra line.delete for the green arrowRelease Notes
Another line.delete ;-)Release Notes
More label.delete and line.deleteRelease Notes
and hopefully the last line.delete modifications :-)Release Notes
Label clean-upRelease Notes
Updated to hide the info label when there's nothing to report on the volumeRelease Notes
Added alerts on the formation of a 2nd higher low or 2nd lower highRelease Notes
Added extra label "No matching setup found" to avoid confusion ;-)Release Notes
This version has now the option to choose version number 2.The main difference is the focus on setting the risk to reward ratio (RRR) based on the statistical chance of hitting TP1.
By default the RRR is 3 and should be good if the hit-rate is 25% or more.
In this version the stop/loss is also moved to the first low (or high in the bearish case). From backtesting I've seen it happen often that this low gets hit for a swing failure pattern. (=grab of stop/losses below that low)
Just put an alert at the low and wait to see if the candle closes above that low again. If it is the case, then the setup is still valid. If price closes below that low, then the trade is invalid.
This setup also benefits from the fact that no 3rd impulse is required to complete the pattern. After forming a higher low, you can already aim for take profit 1.
The volume divergence has been removed as it did not give an added value to the setups.
Open-source script
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in publication is governed by House rules. You can favorite it to use it on a chart.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.