Hello everyone. This is @hibbanoor. This lecture is about the Fibonacci Retracement levels. The lecture was a little bit difficult for me to understand. But after spending much time, now i am going to write my homework task for professor @yohan2on.
WHAT ARE FIBONACCI RETRACEMENT LEVELS?
We know that the crypto market is highly volatile. The trends change every day. Like the market remain at its uptrend for some days and then the bullish period start and so on. But sometime, the market change trend for short time when the market is at its peak.
Fibonacci Retracement levels are actually the tools which help the traders to predict the values at which the retracement can occur. The Fibonacci retracement level are used to define the possible support or resistance level in chart. The horizontal lines are used for Fibonacci. This tool was introduced in 13th centaury and still the traders are using this to perform the successful trading. The information is provided about when the retracement can occur in market trend by using this tool.
The Fibonacci occur only when the market trend is at its peak. When the trend is bullish or bear, only then the Fibonacci will work.
Now what is retracement? Like if the market is at bullish period, then the market start going down for some period of time and then again come back to its uptrend direction. Similarly this may happen in bearish period too. During these small trend change periods, the market is actually experiencing the retracement. These are the temporary reverse point in market. After a small reverse, the market again come to its trend.
When retracement occur, the traders use the 4 Fibonacci sequences to measure the Fibonacci level. The number of retracement level which are obtained using the Fibonacci retracement tool are 4. These percentages levels are at the 23.6%, 38.2%,61.8% and 78.6%.
How the Fibonacci Numbers are formed
The Fibonacci numbers are represented mathematically by a set of number. This set is started from 0 and go to infinity. The list can be arrange as 0,1,1,2,3,5,8,13......infinity. After first two numbers, Here each next number is some of its previous two numbers like;
Question 2- Practically demonstrate your understanding of the Fibonacci retracement levels using a Crypto trading chart of your choice. (Use trading view)
Plotting the Fibonacci Retracement.
The fibonacci level are determined by the fibonacci sequence ratio. The Fibonacci is used by the traders to identify where the retracement will occur in market trend. The trader must have a proper knowledge about the market trend to use the Fibonacci retracement level.
Open the Binance and choose the pair of your own choice. I choose ETHUSDT.
Click on "fx indicator". Select the Fibonacci retracement level from the list.
You will see that the Fibonacci retracement will be added in your chart.
You can see above the fibonacci tools are the horizontal lines. These lines are indicating the maximum and minimum market value.
The levels used in Fibonacci are 23.6%, 38.2%, 61.8%, 78.6%,50%. The 50% level cannot be obtained by the Fibonacci retracement. This is the level of balanced market which is not consider the fibonacci level.
UNDERSTANDING THE FIBONACCI RETRACEMENT GRAPH
The Fibonacci tool is use for fibonacci level. The traders must have a complete understanding about the market trends for using the Fibonacci retracement level. He must have the knowledge about when the market is bulishing and when the market is bearing period.
In market uptrend. The Fibonacci retracement level is use for measuring the retracement level in trend. When the market is at its uptrend and a retracement occur, then the market make a slight move toward the downward. But this move is temporary and market again rise to uptrend. In this case, the points are plotted from low to high point.
If market is trending down and retracement occur, then a slight change occur in trend. The trend change and go upward. But this change is temporary and market again come back to the downtrend position. Here in this case, the points are plotted from high to low point.
Trade Entry and Exit Using Fibonacci
We know that fibonacci retracement tool is use for predicting when the retracement will occur in trend. It doesn't show when the retracement will last. It is always best to use this the Fibonacci tools with other tools to get the best result. If you want to make the decision for entering the market based on the Fibonacci tool, then consider the following points.
- The market should either be in uptrend or downtrend. The Fibonacci tool can always be useful if market is at its trend. So trend must be clear to the trader.
- Market should be in Uptrend or Downtrend
- Market should be in retracement period
- Now set the Fibonacci from high to low if market is in downtrend and low to high if market is in uptrend.
If you want to exit the market sing the Fibonacci retracement level, then use the take Profit and stop loss. This will help you to reduce the risk of lose of money and you would be in position to earn the good profit. These two will help you to exit the market successfully.
Setting up Stop loss exit
This help the trader to reduce the maximum lose. It is require to set the price at the certain level or point. The traders set the price in downward direction. When the market reach the level which you set, then it will close and trader will have the low lose. You will get a limited lose. If the market si still going down, you will not have lose because you already had set the stop loss. After reaching that point, you quite and close. Now further lose won't effect you.
You always set the stop lose a few point above than your entering point. The traders usually set the "take profit " price with the ratio of 1:2 with the Stop loss.
Setting up take profit exit
In setting the Take profit exit, The traders set the price in upward direction. The trader set the price and when market raise till that point, the profit is added in your portfolio and you exit automatically. Now if market raise further or start downtrend, both cases won't effect you. You just set the exit point. When the price reach to that point, the profit added to your portfolio and you exit automatically.
The traders usually set the "stop loss " price with the ratio of 2:1 with the take profit.
The traders set the take profit and stop loss points while using the Fibonacci tool. This help the traders to take the profit of his own set price. It also save the investors from the maximum lose. The traders always set the stop lose a few pip(5-15) above than the point from where the entered in the market.
So by setting the stop lose, the traders take a bit advantage and save them from drowning their money. The just take a very slight advantage for their investment, and exit from market. They set stop loss in profit. Although this profit is always a very small, but still traders save himself from risk of losing all money.
Other Indicator Used with Fibonacci
We know that the Fibonacci tool is only to indicate the retracement occur in market trend. This work only at market trend. If market is uptrend or downtrend, then we use the Fibonacci tool to trace when the Retracement occur. But if you use this tool by combining with other tools, it will help the traders in successful trading. We only it only is useful for the market uptrend and downtrend positions. Alone it can only use for identifying the retracement.
This tool can be use with candlestick and moving average. By combining with other tools, this help the traders to take the most effective trading decisions.
The Fibonacci tool is helpful to identify where the retracement will occur in market trends. This tool can be use by combining with other tools. Then the trader can take the more effective and better trading decisions. This tool help the traders to trace when the retracement will occur. Moreover you can determine the entry and exit point too sing this tool. Then we can combine this with other tools to take more highly result.
This lecture was about the Fibonacci retracement level. We learnt about the Fibonacci tool in depth. I am deeply thankful to the professor @yohan2on for this amazing lecture.