Trading using Fibonacci Retracement Levels

Hey Steemian friends!

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

You must be familiar with Fibonacci sequence from your math class or if you are a fan of "The Da Vinci Code" that decode a password using Fibonacci. It always cool how this pattern of numbers that emerges and its connection to patterns in natural world and human behavior. More importantly Fibonacci sequence has used in various fields, including mathematics, computer science, and art.

The sequence is portrayed as a key element in solving puzzles related to hidden messages and symbols. So why not use it in the trading! Someone must have thought like that 😊
Now how does the sequence work, pretty simple.

You start from 0 and then 1 and thereon you are just keep adding the previous two numbers to make a new number.

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144.. any guesses for the next one?

As I said just add last two,
89 + 144 = 233 and then 144 + 233 = 377, can do all day right?

But we have different numbers in our tool! 0.236%, 0.382%, 0.5 and 0.618% What’s happening here? 👀 I will discuss that on the third question. Let's focus why we have these levels for now.

^{Fibonacci Retracement Levels}

This gives us the following Fib levels:

Fib levels	Price Predictions
23.6%	49,450.40
38.2%	47,368.30
50%	45,685.50
61.8%	44,002.70
78.6%	41,606.85

Now these price points can be used as a strong support and resistance levels according to the price action in the market.

The main uses of these levels are to plan entries, determine stop-loss levels, or set price targets and exits. Traders often use these retracement levels as support or resistance during a price correction within a broader trend.

👉 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).

I just showed BTC/USDT uptrend, so I will start with the downtrend.

Crypto pair	BTC/USDT
Time Frame	04 hrs
Tool	Fib Retracement
Point 01	48,970
Point 02	38,555

^{BTC/USDT downtrend analyze}

Fib levels	Price Predictions
23.6%	41,012.94
38.2%	42,533.53
50%	43,762.50
61.8%	44,991.47
78.6%	46,741.19

In above levels we can see price moving side by side respecting 50% & 38.2% levels as a support & resistance level. In the next 02 points we also can see price reset at the levels before new trend begins. This is a good example to showcase how good this Fibonacci Retracement Levels are for traders.

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Crypto pair	ETH/USDT Uptrend
Time Frame	01 Day
Tool	Fib Retracement
Point 01	1,370
Point 02	2,138

^{ETH/USDT Uptrend analyze}

In this example it clearly demonstrates how good these levels have been as resistance and support levels.

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Crypto pair	ETH/USDT Downtrend
Time Frame	04 hrs
Tool	Fib Retracement
Point 01	48,970
Point 02	38,555

^{ETH/USDT Downtrend analyze}

Once again we can see that price is respecting support and resistance. In the level 0 we can see trend is continuing as a downtrend after a retesting the level making it a strong resistance for the next uptrend.

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Crypto pair	STEEM/USDT Uptrend
Time Frame	04 hrs
Tool	Fib Retracement
Point 01	0.1709
Point 02	0.3322

^{STEEM/USDT Uptrend analyze}

It's truly amazing to witness how these levels work like a charm at times. After hitting 0.3322 price dropped within 04 hours to its strong support line, which is at 78.6% level. When the price broke above all the levels to hit the previous high , the support moves to the next at 61.8%.

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Crypto pair	STEEM/USDT Downtrend
Time Frame	01 hrs
Tool	Fib Retracement
Point 01	0.2417
Point 02	0.1982

^{STEEM/USDT Downtrend analyze}

Looking at the one hour chart, we can see that price is not respecting fib levels as much as on longer time frames. But even here we can see strong support to break at the 23.6% level.

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👉 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.

• 0% (No Retracement):
  This level represents the starting point of the retracement. It's not derived from the Fibonacci sequence but is included as a reference point.

• 23.6% Retracement:
  This level is calculated by taking a Fibonacci number and dividing it by the number two places to the right (e.g., 21 / 89 = 0.236).
  
  Since this is the first retracement level, traders expect consolidation over this level before a bounce or pull back. If the price bounce or pull back from this level and hold it path, it could suggest that the trend is strong and likely to continue on same direction.

• 38.2% Retracement:
  This level is found by taking a Fibonacci number and dividing it by the number one place to the right (e.g., 34 / 89 = 0.382).
  
  Traders often see this level as a significant area where a trend might find support or resistance. If the price holds above this level, it usually an early signal for a continuation of the trend.

• 50% Retracement:
  This level is not directly derived from the Fibonacci sequence but is included as a psychological midpoint between the starting point and the endpoint.

• 61.8% Retracement:
  This level is found by taking a Fibonacci number and dividing it by the number one place to the left (e.g., 55 / 89 = 0.618).
  
  This level is considered a strong retracement level hence a bounce or reversal at the 61.8% level can be a signal that the trend is likely to resume to same direction as bounced or reversed.

• 78.6% Retracement:
  This level is found by calculating the square root of 0.618. The 78.6% retracement is derived as a more shallow retracement level before the full retracement at 100%. Hence this level too consider as a strong support and resistance area.

👉 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.

Unlike any indicator, Fibonacci retracement tool can give us a specific idea about a potential support and resistance level in the future price action. But the problem is, like any other indicator or tool this is too not 100% accurate. So, if you are not careful enough to have backup technical analysis tools to identify potential areas to make more informed decisions, more often you will regret that decision.

So let's use RSI as an experiment to see whether we can support the levels we find from the Fibonacci Retracement tool.

^{Can RSI helps Fibonacci for more robust analysis?}

The points where highlighted as ellipses, we can see the price action reacting to levels and oversold & overbought scenarios. Hence giving us confidence in our decision to help Fibonacci Retracement levels.

However, can you see the highlighted rectangle area where the RSI has an overbought indication but there's no reversal of price action. This is a good example that PA does not always respect the technical tools but market at that instance.

Hence, it is always advisable to keep a strong risk management strategy in place if things go south than expected.

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

Crypto pair	STEEM/USDT
Time Frame	01 hr
Tool	Fib Retracement
Point 01	0.1982
Point 02	0.2561

^{STEEM/USDT Uptrend analyze}

Today we saw Steemit shoot to 0.25+ after some sometime. This is a good point to analyze and understand the next support levels. It is noticeable strong support is there at 61.8% level. It was a strong resistance the week before, so we can argue this level is strong and might hold the line for an uptrend. Let's keep our fingers crossed for that prediction.

Thank you for this interesting contest @crypto-academy. Looking forward to taking on the next week’s challenge. I would like to invite @tenguhatanga, @crisvera & @morgan76 to participate in this contest.

Thank you.

Peace to all 🙏

^{The cover image has been developed by Midjourney. All other images are taken from trading view as screen shots and edited in photoshop.}