Trading using Fibonacci Retracement Levels

Assalamualaikum, everyone ; today, with this post, I will participate in a weekly challenge by Crypto Academy. So, let's start learning a technique that has been used by traders from the old days and up until now, and it is helpful in both stocks and the crypto market.

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_{Explain the concept of Fibonacci retracement as a technical analysis tool and how it is applied in crypto markets.}

Support and resistance are the critical components for traders, whether they are in stock or crypto, whether they are day traders or keep long positions, and whether they trade in the spot or trade in futures. Many indicators use support and resistance; one of them is Fibonacci Retracement. It is based on the idea that prices tend to retrace a predictable portion of a move, after which they may continue in the original direction.

Analyzing price draws five lines between two chosen points: 0.236, 0.382, 0.5, 0.618, 0.78. the selected points are 0 and 1. These are all percentages of retracement; they are all valuable, especially for putting stop losses and guiding traders through the ups and downs of the market.

I've mentioned that one of the numbers, i.e., 0.618, is also known as the "Golden Sequence." Getting out of the market on time is a must for every trader. So, in short, Fibonacci Retracement is helpful in

1-Trend Identification
2-Placing Safe Positions
3-To Move with Swinging of Price

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_{Utilize Tradingview to illustrate Fibonacci retracement levels on the BTC/USDT, ETH/USDT, and STEEM/USDT pairs. (Include screenshots to showcase retracement levels during both uptrends and downtrends).}

Utilizing this tool is quite simple for every trader: open the targeted chart and apply this tool. I will show three charts below and use them in both uptrends and downtrends.

_TradingView

In this chart I used FR to highlight uptrent in the BTC/USDT chart, in which 0.7 being an important support for the upgoing price

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In the above chart, I used FR to to highlight downtrend in BTC/USDT chart, in which 0.5 is being a major support for the down going price.

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_TradingView

The above chart is from ETH/USDT, I used FR to show uptrend in which 0.7 and 0.5 being important points for upgoing price.

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_TradingView

In the above chart of ETH/USDT one can see how FR is used to show down trend in which 0.5 being an essential resistance.

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_TradingView

In the above chart of STEEM/USDT you can see how the FR is used to show the uptrend, and every line plays important role

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_TradingView

In the above chart of STEEM/USDT, one can see how FR is used to show the downtrend of the price and 0.6 line was the important one as a strong resistance.

In all the above charts we see that mostly lines before the 0.5 are most important, as both volume and traders coming in or going out of the market, the later usually just follows the trend.

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_{Break down the significance of key Fibonacci levels (e.g., 0.382, 0.500, 0.618) and explain how traders interpret these levels for potential support and resistance areas}

The Fibonacci sequence yields Fibonacci retracement levels, which are essential for technical assessment in the financial markets, including cryptocurrency trading. These levels—0.382, 0.500, and 0.618 important in particular because they could act as support and resistance areas and affect traders' choices.

Significant Fibonacci Numbers

38.2% (0.382): Often denoting a retracement following a large price move, this level is seen as a corrective point. It is seen by traders as a "profit-taking zone," where early movers may enter or exit positions, serving as resistance in downtrends or support in uptrends.

50.0% (0.500): This level, which is halfway through the retracement, is important from a technical and psychological standpoint. It tests the strength of the dominant trend and acts as a crucial decision point. A break at this level implies a possible trend reversal, whereas a recovery at this level supports trend continuance.

61.8% (0.618): Known as the "Golden Ratio," this level denotes a more substantial retracement and is frequently accompanied by intense buying or selling pressure. In the case of an uptrend, a bounce at this level indicates strong support; a breach could portend an impending slump.

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Traders utilize Fibonacci levels for various purposes;

Entry/Exit Points: Using their trading strategies and risk management tactics, traders can use these zones to help them identify the best times to enter and exit the market.

Order placement: Traders use Fibonacci retracements to identify resistance levels, and they place take-profit orders above these levels to limit risk. Stop-loss orders are placed below support levels.

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Combining with Additional Tools:

Traders frequently use Fibonacci retracement levels with other technical analysis techniques, like as trendlines, moving averages, and candlestick patterns, to improve the accuracy of identifying support and resistance. This integration strengthens trading decisions overall and increases the likelihood of discovering meaningful price levels.

It's essential to comprehend market psychology. Fibonacci levels are relevant because they are significant from a mathematical perspective, but they also elicit psychological reactions from market players.

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_{Explore the synergy of Fibonacci retracement with other technical indicators (e.g., Moving Averages, RSI). Discuss how a combination of tools can provide a more robust analysis}

Using only one indicator or tool is always harmful and riskier than ever. instead traders use 2 or 3 indicators or tool. I will explain use of Moving average and Supertrend with FR

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USE OF MA WITH FR

MA is an indicator, which is driven my averages of prices to determine the future direction. here how I will use it with FR.

_TradingView

In the above chart of 4H we can see application of both FR and MA in chart of BTC/USDT. Both MA and FR provides their support and MA support will be danger, if it breaks then FR line will be strong support. The redline of FR is the point if it gets break, one should sell.

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USE OF FR WITH SUPERTREND

Both Super trend and FR used for determining trend and place buying and selling positions easily

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In this chart of BTC/USDT of 4H we can see application of FR with Supertrend
Here we also can see the buying signal is started when both the Super trend and Fibonacci Retracement. The strong support is also mentioned, which if get break will be a strong selling signal and breaking of trend.

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_{Specifically analyze the recent price action of STEEM/USDT using Fibonacci retracement.}

To check Steem price we have to go to the chart and use all the 3 tools, supertrend, moving average and FR.

_TradingView

In this chart we can clearly see in STEEM/USDT 4H timeframe, we can predict the price of Steem. It is clear by this that the mentioned point is extremely important at the time of writing for the Steem. although the weakest support by FR has been broken by the price, but not of Moving average and supertrend, that is why it is still an upgoing trend, if the Moving average support is broken by the price it will be a strong selling point.

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CONCLUSION

In conclusion, trading is risky, but the risk can be lower with tools and indicators. Fibonacci Retracement is one of the tools used to draw between two points, which analyzes the price and gives different resistances or supports, which, in turn, perform very well and give better results when teamed up with other indicators.

I'd like to invite @malikusman1 , @enamul17 @huzaifanaveed1 and @drqamu for this task.

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regards,
@abdu.navi03