Fibonacci Tools - Steemit Crypto Academy |S6W4| -
Good day steemians, This is season 6 week 4 of the crypto academy and I'll be doing the task assigned by crypto professor @pelon53
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Fibonacci retracement..in my own words
It's observed that in the market of an asset or instrument, price doesn't just make an impulsive move in an intended direction and keep going all the way. There are moments in time price must make a pullback or retrace in order to test a structure, area, or zone before it can continue its move.
The duration and length of the retracement can't really be estimated and therefore it may be somewhat difficult for traders who intend to hop in on the existing trend to seek entry points. This is where the importance of the Fibonacci retracement' tool comes in.
The Fibonacci Retracement tool is a popular technical analysis tool that uses mathematical relationships to plot percentage lines to identify key levels of support and resistance in the market. The Fibonacci retracement tool consists of vertical lines which are used to represent the different key levels that exist in the market upon a retracement. The basic constituent of this tool is a popular concept known as the "golden ratio'.
In an impulsive move to the up or downside, price would make minor retracements and the Fibonacci tool can be drawn from the previous low to the recent high in a uptrend to determine where to enter with respect to trend continuation. Any point where the Fibonacci retracement is drawn from would serve as the 0% and 100%. A graphical illustration of the Fibonacci tool customized to chart is shown below.
Fibonacci retracement
image gotten from trading view
The Fibonacci extension.
The Fibonacci Extension is another technical analysis tool with very similar characteristics to the Fibonacci retracement explained above. However, while the Fibonacci retracement tool is used to identify how far price would make a pullback or retrace in an existing trend the fib extension is used in the determination of how far price can soar before the need for another retracement. Due to its functionality, this tool is used by many traders to help in setting trade exit criteria such as the take profit levels.
The first point of the Fibonacci extension is drawn on the start of an impulse or impulsive move in the market and then extended to the end of the impulsive move. Once this has been plotted, the third point of the fib extension is placed at the end of the retracement as shown below where the start of an impulsive move has been identified and the fib extension is placed at this point and plotted to the end of the move and finally the end of the retracement.
Fib extension added to chart
image gotten from trading view
The levels shown on the fib extension are all key levels which price could find support or resistance in and this tool coupled with price action is very good for setting take profit target.
3. Calculation of the Fibonacci Retracement
The calculation of the Fibonacci retracment :
The mathematical formula for the calculation of the Fibonacci retracement is given below as:
RX = X + [(1 - % Retrace1 / 100) * (Y-X)]
In this formula, the term 'X' is used to denote the beginning of the spotted trend, the previous price which serves as the basis for the beginning of the Fibonacci retracement tool while the term 'Y' is used to denote the minimum or maximum point price got to before a retracement or pullback.
The different retracement levels are given below.
Retrace level 1 = 23.6%
Retrace level 2 = 38.2%
Retrace level 3 = 50%
Retrace level 4 = 61.8%
Retrace level 5 = 78.6%
Calculating the retracement for levels 0.618 and 0.232 respectively.
Calculating 0.618 fibonacci level
Below is a chart illustration of the FTM/USDT with which i'll be using for the calculations.
image gotten from trading view
With respect to the above mathematical formula for calculating the Fibonacci levels.
RX = X + [(1 - 0.618) * (Y-X)]
Where x = 1.1453 and Y = 1.2671
RX = 1.1453 + [(1-0.618) * (1.2671-1.1453)]
RX = 1.1453 + (0.382 *(0.1218)
RX = 1.1453 +(0.0465)
RX = 1.1453 + 0.0465
RX = 1.1918
This is confirmed by the chart below
image gotten from trading view
Calculating 0.236 fibonacci level
With respect to the above mathematical formula for calculating the Fibonacci levels.
RX = X + [(1 - 0.236) * (Y-X)]
Where x = 1.1453 and Y = 1.2671
RX = 1.1453 + [(1-0.236) * (1.2671-1.1453)]
RX = 1.1453 + (0.764 *(0.1218)
RX = 1.1453 +(0.0930)
RX = 1.1453 + 0.0930
RX = 1.2383
The value for the 0.236% level is also confirmed below.
image gotten from trading view
Therefore, we confirm the authenticity of the mathematical formula given for the calculation of the Fibonacci levels above as the values for the 0.618 and 0.236 corresponds to that of price.
4. Real trade using the Fibonacci Retracement
For this task, ill proceed to carry out a real trade using my verified Binance mobile wallet for entry and the trading view charting software for analysis.
From the chart below, we observe the AAVE/COTI pair is in a state of downtrend making lower highs and lows. Price was currently making a minor pullback before continuing with its bearish movement. Looking at past price action, a minor support can be spotted at the 0.382 level of the Fibonacci retracement drawn from the high point ($158.8) to the low point ($156). Price has retraced to this zone to test from below again and we observe that price had difficulty breaking above this level due to the existence of wick structures. A sell trade was taken at this point with risk management measures employed.
Real trade on AAVE/USDT
image gotten from trading view
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proof of trade
image gotten from binance mobile
5. Demo trade using the Fibonacci retracement
For this task, I'll proceed to carry out a demo trade using the trading view paper trading software.
From the chart below, its observed that the ICP/USDT chart pair is currently in an uptrend state making consistent higher highs and higher lows in the market. A fibonacci retracement was drawn on the last low to the high of the most recent move and price action revealed previous rejections of the 0.5 zone, therefore we wait until price retraces to this point from the upside and watch out for rejections. Once spotted, a buy entry was placed with risk management measures fully employed.
proof of demo trade
Conclusion
Fibonacci tools, mainly the Fibonacci retracement and Fibonacci extension indicator as covered by the crypto professor are very useful to set of tools in determining entry points in a trending market and ascertaining how long a pullback or retracement in the market would last. They are a must know for traders seeking to get profitable in the market.
The crypto professor has done an excellent job of putting forward the concept of support and resistance trading as well as strategies to use to profit from this form of trading in a simple way. Thanks to the steemit team for the crypto academy, It's done far much in helping me tackle the markets one indicator/strategy at a time.