Trading using Fibonacci Retracement Levels

Assalamualaikum everyone!

Welcome back to my blog. Hopefully, all of you will be doing well and enjoying the time with the grace and blessings of Almighty Allah. Today, I'm here to be a part of the week 5 contest in the SteemitCryptoAcademy community. The topic of discussion for this week is Trading using Fibonacci Retracement Levels. So, let's start the fun without any wastage of time.

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

Fibonacci Retracement is a technical analysis tool based on the Fibonacci sequence, a set of integers in which each number is the sum of the two numbers before it. This sequence has relevance in a variety of fields, including nature and financial markets. Fibonacci Retracement is useful in cryptocurrency trading because it helps identify potential support and resistance zones where price action may continue or reverse.

Imagine cryptocurrency price changes as a twisting route rather than a straight line. Fibonacci retracement helps in navigating this road by identifying possible resting points along the way. Consider it a roadmap that identifies locations where the price may stop, reverse, or continue its journey into a particular trend under observation.

The key is found in the Fibonacci sequence, a set of numbers in which each one is the sum of the two numbers preceding it. This "golden ratio" appears in nature and even financial markets, with certain ratios (23.6%, 38.2%, 50%, 61.8%, and 78.6%) serving as potential reversal points.

👉Key Elements of the Fibonacci Retracement:

• Fibonacci Ratios:

Key levels obtained from the series include 23.6%, 38.2%, 50%, 61.8%, and 78.6%. These ratios indicate potential retracement points following a major market movement either during an uptrend or a downtrend.

• Trend Identification:

Fibonacci retracement is beneficial in established patterns (uptrend or downtrend). Identifying the trend is critical to using the tool appropriately.

• Price Swing Selection:

Select two key price points: a swing high (uptrend) or low (downtrend), and a swing low (uptrend) or high (downtrend). These points set the price range for the retracement levels.

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).

The process of applying the Fibonacci Retracement levels on any price chart is quite a simple process. First of all, you have to open the required chart. Then, apply the FR levels after identifying the trend. If the trend is uptrend, you should draw the FR from bottom to the peak and vice versa is applicable in the downtrends.

• Uptrend in BTC/USDT:

First of all, have a look on the below chart in which the FR levels are applied on an uptrend in the BTC/USDT chart.

In the above chart, you can see that the FR levels are applied on an uptrend and in this trend, the FR levels like 0.786, 0.5, and 0.328 are behaving like very strong support levels.

• Downtrend in BTC/USDT:

In the above chart, you can see that the FR levels are applied on a downtrend and in this trend, the FR levels like 0.786, 0.5, and 0.328 are behaving like good resistance levels and after reaching these points, the market always moved down.

• Uptrend in ETH/USDT:

First of all, have a look on the below chart in which the FR levels are applied on an uptrend in the ETH/USDT chart.

In the above chart, you can see that the FR levels are applied on an uptrend and in this trend, the FR levels like 0.786, 0.5, 0.328 and 0.236 are behaving like strong resistance levels and market moved up after crossing them.

• Downtrend in ETH/USDT:

In the above chart, you can see that the FR levels are applied on a downtrend and in this trend, the FR levels like 0.786, 0.5, and 0.328 are behaving like good resistance levels and after reaching these points, the market always moved down.

• Uptrend in STEEM/USDT:

In the above chart, you can see the FR is applied on the uptrend and the important levels are behaving like the resistance levels to identify the price retracements during the trend.,

• Downtrend in STEEM/USDT:

In the above screenshot, you can observe that the FR are applied on a downtrend and the major levels in the FR are representing the resistance levels so that the traders can take benefit from these signals.

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

In the Fibonacci Retracement world, not all numbers are equal. While all Fibonacci ratios have some value, three specific levels stand out as potential support and resistance in cryptocurrency trading:

1. 38.2% (0.382):

This level is considered a corrective point. After a significant price move, traders frequently expect a 38.2% retracement before the trend resumes. Consider it a "profit-taking zone" for early movers, perhaps providing support in an upswing or resistance in a decline.

2. 50.0% (0.500):

This level, which marks the mid of the retracement, is significant both psychologically and technically. It serves as a vital decision point in which the trend's strength is tested. A bounce here indicates trend continuance, while a break indicates a possible trend reversal in the particular trend.

3. 61.8% (0.618):

This level, known as the Golden Ratio, is the most significant in Fibonacci research. It denotes a deeper retracement, where strong buying or selling pressure may occur. In an uptrend, a bounce here shows strong support, whereas a breach signals that the downtrend may be starting soon.

Talking about the Use Cases of These Levels...

• Entry/Exit Points:

We can use these zones to determine where to enter or quit trades based on your trading strategy and risk management methods.

• Order Placement:

Another important thing is that to reduce risk, consider putting stop-loss orders below support and take-profit orders above resistance. So, these can help us a lot in the trade setup.

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.

As we all know that we cannot solely relay on a single indicator while doing the technical analysis, especially in the cryptocurrency markets. So, the combination of two or three other indicators is also important to make good decisions in the market. Below are some examples of the use of other indicators like RSI, MA and BB with the FR levels.

• FR and RSI:

In the above picture, you can see that I have applied the RSI and the FR on the same chart and there are some points that I have mentioned with the help of the Blue and the Yellow vertical lines. At the first p;ace, you can see a sync of the trend reversal at the Blue line.

The 0.50 range of the FR was indicating a resistance level during the downtrend and it was the trend continuation point. At the same time, we can see that the RSI line was near the mid line and moved back to the below line. So, this is the trend continuation of the downtrend confirmed by these two indicators.

On the other hand, you can see that the when the RSI line reached the Oversold area which is the indication of the upcoming uptrend, the FR was also at the bottom level which is also saying a trend reversal from down to the up trend. In this way, these two indicators sync with each other.

• FR and MA:

In the above screenshot, you can see the application of the FR and the SMA indicators on a downtrend of the BTC/USDT pair. You can clearly see that the SMA line stays above the price action until the end of the downtrend and this thing was confirmed by the FR levels.

Each time when the price action line approached the resistance level, it bounced back to the downward direction and until the end of the trend, it happened. So, here we can see that both of these indicators are syncing with each other. But, we should keep in mind that this is not the MAGIC TRICK. We should always do proper analysis before making any decision.

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

Well, I am going to predict the STEEM coin next trend with the help of the FR and some other indicators. First of all, look at the below image in which FR is applied on the STEEM/USDT chart with 1 day timeframe.

In the above screenshot, you can see that I have spotted a downtrend with the help of FR levels. You can see that the whole sequence of the FR levels has completed and now, the price action have already crossed the 0.382 level. So, we can expect a trend reversal from bearish to bullish in the upcoming few days. Let's confirm this with the help of some other indicators.

In the above screenshot, you can see the application of the RSI indicator on the chart. The RSI indicator is also saying that there is a possibility of the uptrend as the RSI line is moving above the mid line and a good potential can be observed in the RSI line. Let's move forward.

There is another confirmation of the upcoming uptrend from the SMA line. You can clearly see that the SMA has line has already crossed the price action and now it's moving below the price action. So, we can take it as a confirmation of the upcoming uptrend signal from the FR, RSI and SMA collectively.

Conclusions

Fibonacci Retracement is actually a technical tool which is used to determine the possible trend reversal and trend continuation points during any uptrend or downtrend. It is actually based on some calculations and different levels give us different signals. The combination of the FR levels with the other technical indicators is very much important before making any decision in the market.

I would like to invite my friends @malikusman1, @sahar78, @aaliarubab, @ashkhan, @suboohi, @artist1111, @waqarahmadshah and @abdullahw2 to be a part of this amazing contest.