Hello guys,
It's a pleasure to be in attendance in this weeks homework task. This week I will be attempting the homework task given by professor
@pelon53 after the lecture he delivered on
Fibonacci Tools. This blog will be a response to the homework given by the professor.
1.- Explain in your own words what you mean by Fibonacci retracement. Show an example with screenshot.
The price of asset always moves in a zig zag manner. This is to say when the price is moving in an upward direction it does not move in a straight form instead it goes up then pull back I.e the zig zag movement of the price of the asset. So in essence, if a price of an asst is moving in a certain direction be it upward or downward, the price retraces after a distance movement and after that retracement, the price reverses and then continue again to move the initial trend direction. This level of retracement are region where traders take a position again in the market.
When we talk about Fibonnacci retracement we are referring to a tool use to measure the distance a price of an asset can pullback after an upward or downward movement. This means that if the asset is moving in an upward direction, the Fibonacci retracement will be drawn from the start of the trend which is usually support level label (x) to the end of the trend usually a resistance level label (y). Similarly, in the case of downtrend, the Fibonacci retracement will be drawn from the start of the trend which is usually resistance level label (x) to the end of the trend usually a support level label (y).
To further explain this, for uptrend movement, the Fibonacci retracement is drawn on the chart from the low position to the high position I.e from support to resistance. In the same way, for downtrend movement, the Fibonacci retracement is drawn on the chart from the high position to the low position I.e from resistance to support.
The standard levels or points on the Fibonacci retracement are 23.6%, 38.2%, 61.8% and 78.6%. Although another level used is the 50% level.
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From the screenshot above, we have applied the Fibonacci retracement tool on the chart and that has helped us to dictate the level of retracement that the price of the asset will go before reversal back to it's initial direction.
2.- Explain in your own words what you mean by Fibonacci extension. Show an example with screenshot.
Traders make use of both the Fibonacci retracement tool and the Fibonacci extension tool simultaneously to make proper trading decision. The Fibonacci retracement as we have discourse above is use to dictate the level to which a price can retrace whereas the Fibonacci extension tool is use to measure the distance in which the retraced price will move after reversal. The Fibonacci retracement tool is use by traders to know the distance the asset can travel and how long it will take before price of an asset experience another pullback or retracement.
Traders who always take into consideration this tool are able to place their stop loss and take profit at the appropriate position. This means that a trader will be able to make a lot of profit since he is away of the distance the price of the asset will move before another pullback. It's important we mention here that the levels of Fibonacci extension are important levels where traders make their decision.
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Considering the chart above, important levels of price action has been marked. The point marked as (a) is the beginning of the trend, the point mark as (b) is the end of the trend and finally the point mark (c) is the point at which the pullback and reverse. On the chart above I have applied the Fininacci retracement tool to calculate the distance at which the price will move before another pullback is recorded.
3.- Carry out the calculation of the Fibonacci retracement, for the levels of: 0.618 and 0.236. Pick a crypto pair of your choice. Show a screenshot and explain the calculation you made.
In the calculation of the Fibonacci retracement, the expression below is usually used.
R = X + [(1 - % Retrace/100) * (Y – X)]
Where:
X = starting price value of the retracement move.
Y = Stop price value of the retracement move.
And retracement values are:
% Retrace 1 = 0.236
% Retrace 2 = 0.382
% Retrace 3 = 0.5
% Retrace 4 = 0.618
% Retrace 5 = 0.786
Calculating for %Retrace 1 = 23.6%
To calculate for the %retrace 1 which is 0.236, the mathematical expression can be used:
R = X + [(1 - % Retrace 1/100) * (Y – X)]
The chart illustrate of this calculation, is seen below
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From the chart above the following data are obtain.
X = 0.01272
Y = 0.01415
Therefore;
R1 = 0.01272 + [(1 - 0.236) × (0.01415 - 0.01272)]
R1 = 0.01272 + (0.764 * 0.00143)
R1 = 0.01272 + 0.00109252
R1 = 0.01381 USDT
From the chart above, the Fibonacci retracement at 23.6% had a price of 0.01381 USDT which correlates with the calculation above.
Calculating for %Retrace 4 = 61.8%
To calculate for the %retrace 4 which is 0.618, the mathematical expression can be used:
R = X + [(1 - % Retrace 1/100) * (Y – X)]
The chart illustrate of this calculation, is seen below
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From the chart above the following data are obtain.
X = 0.01419
Y = 0.01291
Therefore;
R4 = 0.01419 + [(1 - 0.618) × (0.01291 - 0.01419)]
R4 = 0.01419 + (0.382 * (-0.00128))
R4 = 0.01419 + (-0.00048896)
R4 = 0.01419 - 0.00048896
R4 = 0.01370 USDT
From the chart above, the Fibonacci retracement at 61.8% had a price of 0.01370 USDT which correlates with the calculation above.
4.- On a Live account, trade using the Fibonacci retracement, screenshots are required.
The live trade analysis is carried out using the tradingview.com platform, and the execution of the trade is done using my binance exchange account.
WAVESUSDT Buy Trade
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The chart above shows the pair of WAVESUSDT on a 15 minutes timeframe. The asset was initial seen going in an upward direction before a retracement was noticed. The Fibonacci retracement tool was applied to know where the price may likely reverse.
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The chart above shows that a bullish candle has surface which implies that the price has find a support at that point. I decided to enter a buy position when I saw the bullish candle. Price finds support at %retrace 5 = 0.786. See screenshot below.
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The trade was executed in the binance exchange platform and the proof of trade execution is seen in the screenshot below.
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5.- On a Demo account, make a trade operation using the Fibonacci extension. Screenshots are required.
The demo trade analysis is carried out using the tradingview.com platform, and the execution of the trade is done using paper trading account.
AVAXUSDT Buy Trade
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The chart above shows the pair of AVAXUSDT on a 15 minutes timeframe. The asset was initial seen going in an upward direction before a retracement was noticed and after that the price reverse and move back to the initial direction. The Fibonacci extension tool was applied to know the extent at which the next movement will go before another pull back
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The screenshot above shows that the trend stated at point (a) it move up to point (b) which is the end of the trend before it retraced back to point (c). I entered my position immediately after the retracement. See screenshot below.
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The trade was executed in the paper tradingview.com platform and the proof of trade execution is seen in the screenshot below.
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Conclusion
The Fibonacci retracement and Fibonacci extension tools are really very great tools used by different traders in the crypto world. The Fibonacci retracement tool is use to measure the distance of retracement that an asset will have after a certain movement either in uptrend or downtrend. This will help traders to set a good stop loss and take profit position. On the other hand, the Fibonacci extension tool is use to measure the extent to which a trade will move after a retracement. When this data are known by traders, then a better entry and exit position will be taken into consideration.
Indeed the Fibonacci tool is a very important tool which if well understood and put in to practice by traders, there are high chances of obtaining a very high profit with little or no loss attached to it. My most profound gratitude goes to the professor in the person of
@pelon53 for such and insightful and educative lecture.
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