# Fibonacci Betting Strategy in Trading

Written By
Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.
Updated

Fibonacci betting refers to a position sizing strategy based on the famous Fibonacci sequence, particularly with instruments involving binary outcomes (e.g., binary options).

This approach is based on the Fibonacci sequence, a series of numbers where each number is the sum of the two preceding ones.

## Key Takeaways – Fibonacci Betting

• Structured Position Sizing
• Fibonacci betting increases trade size progressively after wins and reduces it after losses, based on the Fibonacci sequence.
• Risk Management
• Starting with a small base unit and adjusting size systematically helps manage risk and control drawdowns.
• Capitalizes on Winning Streaks
• The system allows traders to increase exposure during winning streaks while protecting gains.
• Not a Standalone Strategy
• Fibonacci betting is a position sizing method and should be used alongside a solid trading strategy for effective results.
• Often not practical for continuous trading (which is most forms of trading).

## Understanding the Fibonacci Sequence

### The Basic Sequence

The Fibonacci sequence starts with 0 and 1, with each subsequent number being the sum of the two preceding ones:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, …

### Fibonacci Ratios

While not directly used in this betting strategy, Fibonacci ratios (like 0.618 and 1.618) are derived from this sequence and are popular in other trading applications.

## Fibonacci Betting as a Position Sizing Strategy

### Core Concept

Unlike using Fibonacci retracements or extensions for technical analysis, this approach focuses on determining the size of trades based on Fibonacci numbers.

The goal is to manage risk and potentially increase profits through a systematic approach to bet sizing.

It’s essentially a 2-step Anti-Martingale – namely, betting the sum of the two previous trade sizes, but as it pertains to winning only.

### Basic Rules

2. If you win, move one step forward in the Fibonacci sequence for your next trade size.
3. If you lose, move two steps back in the sequence.
4. Never go below your initial base unit size.

## Implementing the Fibonacci Betting Strategy

### Setting the Base Unit

The base unit should be a small percentage of your total trading capital, typically 1% or less

This becomes your starting point and minimum bet size.

### Progressing Through the Sequence

• If you win, the next trade is 1 unit (no change for first win)
• Win again, move to 2 units
• Another win, move to 3 units
• Continue this pattern: 5, 8, 13, 21, etc.

Many traders will “bank” after hitting a certain number of wins to protect capital.

For example, if a trader wins four times in a row – e.g., \$50, \$80, \$130, \$210 – they’ll go back to the original \$50 trade size.

### Handling Losses

• If you lose at any point, move back two steps in the sequence
• For example, if you lose on a 5-unit trade, your next trade would be 2 units
• Some may follow a modified approach and move back just 1 unit

### Example Progression

1. Trade 1: 1 unit (base) – Win
2. Trade 2: 1 unit – Win
3. Trade 3: 2 units – Win
4. Trade 4: 3 units – Loss
5. Trade 5: 1 unit (moved back two steps) – Win
6. Trade 6: 1 unit – Win
7. Trade 7: 2 units – Win
8. And so on…

### Risk Management

By starting small and only increasing position size after wins, the strategy inherently manages risk.

### Capitalizing on Winning Streaks

The strategy allows traders to increase their exposure during successful periods.

### Systematic Approach

Removes emotional decision-making from position sizing and provides a clear rule-based system.

### Flexibility

Can be applied to various trading strategies and markets, from stocks to currencies to cryptocurrencies.

## Limitations and Risks

### Geared Toward Trading Application with Binary Outcomes

Binary options deal with discrete payoffs and penalties, but other forms of trading typically don’t.

Most forms of trading are usually continuous in some form and not with specific payouts known ahead of time.

### Potential for Large Drawdowns

A series of losses can lead to large drawdowns, especially if larger position sizes are reached.

## Best Practices for Fibonacci Betting

### Combine with Solid Trading Strategy

Fibonacci betting is a position sizing method, not a complete trading strategy.

It should be used in conjunction with a proven entry and exit strategy and a logical overall trading plan.

### Set a Maximum Bet Size

To prevent overexposure, set a maximum bet size, such as 3-5% of your trading capital.

### Use Proper Stop Losses

Implement stop losses on each trade to manage risk, regardless of the current position size.

### Regular Strategy Review

Periodically review the strategy’s effectiveness and adjust the base unit size if necessary.

## Variations of Fibonacci Betting

### Modified Progressions

Some traders modify the progression – e.g., moving only one step back after a loss instead of two.

### Combining with Other Sizing Methods

Fibonacci betting can be combined with other position sizing methods for a hybrid approach.

An example would be combining with the Kelly Criterion or a modified Kelly approach (taking the amount suggested and divide by 10 to keep position sizes small).

### Reverse Fibonacci

Some traders use a reverse approach, increasing size after losses and decreasing after wins, though this is generally riskier.

It would analogous to the Martingale strategy, but including the size of the previous two losses, not the entire accumulation of losses.

(The Martingale method is not recommended and is generally used only for pure gambling and entertainment contexts.)

## Conclusion

Fibonacci betting as a position sizing strategy offers a structured approach to managing trade size based on recent performance.

It can potentially help traders capitalize on winning streaks while managing risk during losing periods.

Nonetheless, like all trading strategies, it has its limitations and risks.

Successfully using it requires a solid understanding of the method, discipline in following the rules, and integration with a strong overall trading strategy.

Traders should thoroughly test the approach in a risk-free environment before applying it to live trading.

No position sizing strategy can guarantee profits or completely eliminate risk.

Your position sizing is an important part of risk management but can’t turn a poor trading strategy into a winning one.