[Fibonacci Tools]- Crypto Academy / S6W4 - Homework post for pelon53.

in SteemitCryptoAcademy2 years ago (edited)

Good day crypto enthusiasts. I believe we are all in good health. We are now in Season 6, Week 4 of Steemit Crypto Academy. We had a very comprehensive lecture from professor @pelon53 about Fibonacci retracements and extensions. This is the presentation of my homework task as assigned by the professor after the lecture. Let's get started!


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Explain in your own words what you mean by Fibonacci retracement. Show an example with a screenshot.

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Fibonacci retracements is a tool being used by traders for technical analysis, and they use the idea of the Fibonacci sequence. The Fibonacci sequence is an ancient mathematical concept, and it is being used in many aspects of life, including technical analysis. The Fibonacci retracements represent horizontal levels on the chart that indicate support and resistance. These lines are based on the Fibonacci ratios. The Fibonacci sequence is made up of numbers in which the sum of each two preceding numbers forms the next one. For example, the first 10 numbers in the Fibonacci sequence include: 0, 1, 1, 2, 3, 5, 8, 13, 21, and 34.

The ratio between the two closest Fibonacci numbers is 1.618, and it is regarded as the golden ratio. The numbers that are used in the Fibonacci retracements are made up of the ratios generated from the Fibonacci sequence in a certain manner. The key ratios that are used in analyzing the Fibonacci sequence include, 23.6%, 38.2%, 61.8% and %100, %50 is also a retracement level, although it is not part of the Fibonacci ratios, it has been added due to the fact that the market usually reacts at this level.

The idea behind the use of the Fibonacci retracements is that the price usually retraces or reverses when it makes a major move. The percentages are made up of the Fibonacci ratios, which connect low points and high points, and they can determine the level at which the price has retraced or reversed or how long the retracement might last. Traders watch these levels to see the price's action, whether it will retrace or break. However, it is not guaranteed that the price will retrace at this level. It is an assumption based on the Fibonacci sequence, but it works sometimes, especially when the market is in a clear trend. Some traders will check the past actions of the chart to see if it obeys the retracement levels.

The Fibonacci retracements work on clear trends like a downtrend or an uptrend, as they will give weak signals on consolidating markets. One of the benefits of the Fibonacci retracement levels is that they don't change in value, they are always constant, which helps traders to easily identify possible pullbacks . To draw the Fibonacci retracement on a chart, you start from the starting point of the trend and draw to the end. For instance, in an uptrend, we start from the bottom and draw to the top, where the various retracement levels will be shown. Consider the chart below.


BTCUSDT_2022-03-14_18-05-03.png
BTC/USDT chart| Screenshot from tradingview.com

In the BTC/USDT 4 hour timeframe chart above, I have implemented the Fibonacci retracement tool in a downtrend from the end of January 2022 to February 24th. I have seen that there were pullbacks at some of the retracement levels. The breakout of these retracement levels resulted in trend continuation.

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Explain in your own words what you mean by Fibonacci extension. Show an example with a screenshot.

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The Fibonacci Extension uses the same concept as the Fibonacci retracements. Their difference is the functions they perform in technical analysis. Whilst Fibonacci retracements indicate levels where the price might reverse, the Fibonacci retracements indicate the possible extension if there is a breakout.

The extensions are also generated based on the Fibonacci ratios. And they are mostly used in finding possible entry and exit positions. For instance, if there is a break in a retracement, I can set my exit position based on the sequence of the Fibonacci ratio in relation to the previous move. The Fibonacci extensions use common values as the retracements.

Just like the Fibonacci retracements, the extensions also work on a clear trend. To draw the Fibonacci extension tool on a chart, we first locate three important points, which include the trend beginning, the trend end, and the retracement end. We then start the line from the trend end to the end of the retracement. Consider the chart below:


BTCUSDT_2022-03-14_18-23-23.png
Screenshot from tradingview.com

I used the Fibonacci extension tool in an uptrend in the BTC/USDT 4 hour timeframe chart above because there was an uptrend from point o and a pullback from point a to point b.I drew the Fibonacci extension and realized that the price had rallied up to the 1.618 retracement level before reversing dramatically.

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Perform 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.

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I will be performing the calculation of the Fibonacci retracements for the 0.236 and 0.618 levels using the LUNA/USDT chart as seen in the screenshot below:


In the first place, let's label the retracements between 0 and 1 as R1-R5.


R1 = 0.236
R2 = 0.382
R3 = 0.500
R4 = 0.618
R5 = 0.786

The formula for the calculation is:

FRn= A + [(1 - Rn) * (B – A)]

Where

FRn= Fibonacci Retracement
A= Price level at the beginning of the retracement
B= Price level at the end of the retracement
Rn= Retracement level


Calculating 0.618 Retracement Level


FR4= ❓USDT
A= 48.22
B= 103.09
R4= 0.618


FR4 = 48.22 + [(1 - 0.618) * ( 103.09 - 48.22)]
FR4= 48.22 + 20.96034 = 69.18034 USDT

Hence, Fibonacci retracement, for the level of 0.618 is 69.18034 USDT


Calculating 0.236 Retracement Level


FR1= ❓
A= 48.22
B= 103.09
R1= 0.236


FR1 = 48.22 + [(1 - 0.236) * ( 103.09 - 48.22)]

FR4= 48.22 + 41.92068 = 90.14068 USDT

Hence, the Fibonacci retracement for the level of 0.236 is : 90.14068 USDT

The chart below is the LUNA/USDT chart with a Fibonacci retracement from 48.22 USDT to 103.09 USDT.


LUNAUSDT_2022-03-14_19-26-18.png
LUNA/USDT chart| Screenshot from tradingview.com

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On a Live account, trade using the Fibonacci retracement, screenshots are required.

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Here, I performed a live trade using signals from the Fibonacci retracement on the XRP/USDT 1 hour timeframe chart. I drew the Fibonacci retracement tool from the beginning of a downtrend. The price was in a clear trend with some pullbacks at some of the retracement levels. At the 0.786 retracement level, the price exhibited a pullback. My entry was set after I confirmed the pullback with the formation of two bullish candlesticks. I set my stop loss just below the resistance level and the take profit at the next retracement level.

The chart is shown below:


XRPUSDT_2022-03-14_20-04-23.png
XRP/USDT chart |Screenshot from tradingview.com

Proof of Trade:


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Gateio exchange

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On a demo account, make a trade operation using the Fibonacci extension. Screenshots are required.

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Here, I performed a long trade using signals of the Fibonacci extension on the XLM/USDT 30 minute timeframe chart. Initially, the price was in an uptrend until there was a trend reversal from o to a. From a the price retraced to b. The Fibonacci extension was drawn from a to the level of b. The price followed the trend to point c before reversing at the 1.618 extension. Following the pullback, I set my stop loss just below the 1.618 extension and my take profit at the following extension.

The chart is shown below:


XLMUSD_2022-03-14_20-35-32.png
XLM/USDT chart |Screenshot from tradingview.com

Proof of Trade:


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Screenshot from tradingview.com

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Conclusion

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The combination of the fibonacci retracement and extension tools can help traders set entry and exit positions. One great thing I have learnt from this lecture is the linkage of the fibonacci tools to the Elliot waves theory. From the practice, I have realized it is a great strategy, and I will practice it more to add it to my trading strategy. I will end here by thanking Professor @pelon53 for impacting us with this knowledge. Waiting patiently for the subsequent lectures.

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