Steemit Crypto Academy Season 3, Week 2|Homework Post for  @yohan2on| Trading with the Fibonacci Retracement levels

in SteemitCryptoAcademy3 years ago

Thank you @yohan2on for the lesson and Home Work Task. Below are the attempts:

Fibonacci Retracement Level

In cryptocurrency trading, there are alot of technical indicators used by crypto users especially users who are into crypto trading. Technical indicators gives a full analysis about the crypto and the user then use these information to determine the best entry and exit for the trading or holding of the cryptocurrency. Examples of this technical indicators are, relative strength index, bollinger band, macd, fibonacci retracement, etc. We'll be focusing on fibonacci retracement.

Fibonacci retracement level is one of the popular tool used by crypto traders to understand understand price movement, to understand the full meaning of fibonacci retracement level, it Is important to know the origin of the indicator. Leonardo fibonacci a top Italian mathematician from pisa introduced the fibonacci sequence.

Fibonacci sequence is a series of numbers starting from 0 to infinity, to calculate it, you start by adding 0 to 1 and then add the value of your answer to the prior number to get the new value and continue this series. For example 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377 to infinity. The fascinating part about these numbers is the relationship between the numbers, when you divide any number by the previous number, your answer is approximately 1.618 for example 377 divided by 233 is 1.618.

This answer(1.618) is referred to as the golden ratio or phi in fibonacci sequence. The relationship in the sequence doesn't end there, when a number is divided by the next number, the answer is 0.618 for example 89 divided by 144 is 0.618 and this answer is consistent with other numbers in the sequence. 0.618 when expressed as a percentage is 61.8%. Also when the a number is divided by a number which is two place higher the result is approximately 0.382 for example 21 divided by 55 is 0.382 and when expressed as a percentage is 38.2%. Lastly when a number is divided by a number three place higher, the answer is approximately 0.236. for example 13 divide by 55 is 0.236 and when expressed as a percentage is 23.6%.These ratios are very important when using fibonacci.

Fibonacci retracement level is simply a technical analysis that is used in determining the support and resistance levels of a stock or cryptocurrency. It is a horizontal line that a trader draws between two extreme points like the highest points to the low points to know levels of support or resistance when price is retracing back from an advance or decline.

These are key retracement levels to take into consideration when price is correcting or experiencing a counter-trend bounce. The levels given by the retracement values gives the user a better understanding about future price movements whether the price will continue declining or it will return to the original price. For example, let assume you are interested in buying a particular cryptocurrency like bitcoin but the price keeps increasing and you don't want to miss out or buy when high, in fibonacci retracement, it is believed that price can retrace from original price downward so using the fibonacci retracement level you can calculate the likely value the crypto will fall to and then use it as an entry point. So we can say fibonacci retracement level is a tool that is used to identify temporary price reversal in a market trend movement to determine the best entry or exit point. The fibonacci retracement level are 23.6%, 38.2%, 61.8% and 78.6%. There's 0.0% , 50% and 100%. Although they are not derived from the fibonacci sequence but most charting platforms shows these percentage.

Fibonacci retracement level is used for different purpose, some traders use it to find the best entry point into a crypto market, some use it to set price objectives they would like to start trading or proper place to place the stop loss, etc.

Many traders have used fibonacci retracement to make lots of profits and they can attest to it effectiveness but for some who are inexperienced about the use of it, they've made a lot of loss due to some mistakes and there are 4 major mistakes made by these people and they are:

Mixing Up the Reference Points: this is a common mistake among inexperienced traders, they keep mixing the reference point and in Fibionacci retracements needs reference points needs to be consistent. When reference points are mixed the analysis becomes incorrect. The highest and lowest points of a trend should be referenced wick to wick not body to wick also it should be candle body to candle body not candle body to wick.

Using fibonacci retracement level as the only technical indicator: many people don't like stressing themselves and theres a lot of stress mental stress and time involved in analyzing cryptocurrency indicators. Most traders just rely solely on fibonacci and fail to combine other technical indicators like macd, rsi,etc to confirm the price movements. Using other technical indicators will improve your trades as fibonacci retracement level is majorly good for trade setup.

Using fibonacci for short term trades: Inexperienced traders thinks all technical indicators can be used for all time of trades either long term, swing trade or short term trading. Traders who are into short term trading are not advisable to use the fibonacci retracement level, fibonacci is mostly effective when the time frame is longer but for short time frame, it is difficult to pick the correct level to trade as spikes and whipsaw are rampant.

Ignoring long term trends: this mistake is mostly common among new traders, most of them don't know the difference between short time trends and long time trends, they try to pullback in short term without considering the long term. Traders needs to look at the trend more holistically so they can be aware of long terms trend and apply fibonacci retracement level correctly so they can get maximum opportunities.

20210708_080523.jpeg

The chart above is for ETH/ BTC pair, the chart Is labelled so we can have a perfect understanding of the price movements and also apply the fibonacci retracement level.
To get the fibonacci retracement level, draw a line between a top point price to the lowest bottom price, the charting platform will auto calculate the retracement level for you.The part labelled as peak is the highest price within the time frame.m, the sloping line is the fibonacci line and the horizontal lines is the different retracement level.

At the peak, the price is at 100% of the fibonacci retracement level and then the downward trends sets in, when the proce 38.2% of fibonacci retracement level, there is a price reverse and the price increased although the increase was a temporary one cause when it reached 61.8% the bearish trend continues at this point and it went below 23.6% up to 0.0% before the bullish trend set in again.

20210708_080529.jpeg

If I'm interested in trading the crypto pair the part marked X will be my entry point because it is lowest price moreover the main reason for trading is to make profits by buying low and selling high. To know my exist point, I will combine other indicators like the relative strength index to determine the strength of the trend if the bullish trend is just for the short time or it would rise higher, if the bearish trend will set in soon then the part marked Y will be my exit point.

The motive of every trader is to make profits and every resources is directed and coordinated to achieve this, but while trying to make profits there is chance of making huge loss and losing your investment. To be at a more safer side it is neccessary to manage your trade so that's how we got trade management also known as risk management. To reduce my loss while trading the crypto pair, I will set a stop loss order at 50% of the retracement level and I can set my take profit order at 78.6% or 100% depending on how long the bullish trend is expected to last.

20210708_080534.jpeg

The best indicator to use with the fibonacci retracement level is the relative strength index and Moving Average Convergence and divergence so as to the confirm the reliability of the market trends and have a more profitable trade

20210708_080543.jpeg

Thank you for reading my post.

Cc: @steemcurator02

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Hi @gboye1

Thanks for participating in the Steemit Crypto Academy

Feedback

DefinitionApplication of the Fibonacci on the chartsScreenshots usedcontent presentation & Trade management
2/21.5/31.5/21.5/3

This is good work. I am glad you were able to plot the Fibonacci correctly on the charts. Yes, identifying 2 price points is key (the peak price and bottom price) as portrayed in your provided screenshots above.

My most emphasis is on the application of the Fibonacci retracement levels in your trading. I am glad you were able to demonstrate something in that direction though you needed to take it further by showcasing where you place the Take profit and stop loss practically on the charts and not just keeping that part in theory.

Homework task
6.5

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