🔥 Learn To Trade With FT: Fibonacci Retracements

As of today I will start a new series for the TradingView community: Learn To Trade With FieryTrading.

I will be doing deep-dive analyses on different trading strategies to explain how they work and especially why they work. The idea behind this overview is to make you a better, more well informed trader.

If you learn anything from this post, please give it a like!

Learn To Trade With FT: Fibonacci Retracement Entry

Introduction:
Fibonacci retracements are a popular technical analysis tool used by traders to identify potential support and resistance levels in financial markets. Derived from the Fibonacci sequence, this tool can help you make more informed trading decisions. In this guide, we'll walk you through how to use Fibonacci retracements effectively and how to draw them accurately.

Understanding the Fibonacci Sequence:
Before diving into Fibonacci retracements, it's essential to understand the Fibonacci sequence. The sequence begins with 0 and 1, and each subsequent number is the sum of the two preceding ones. The sequence goes like this: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so on. The ratios derived from these numbers are used in Fibonacci retracements.

The primary Fibonacci ratios used in retracements are:

0.236 (23.6%)
0.382 (38.2%)
0.500 (50.0%)
0.618 (61.8%)
0.786 (78.6%)
1.000 (100.0%)

How to Draw Fibonacci Retracements:

Select a Trend: Identify a significant price trend (either up or down) on your chart. Fibonacci retracement reversals usually work better in strong trends.

Choose the Swing Points: Locate the swing points of the trend. A swing low is the lowest point in an upward trend, and a swing high is the highest point in a downward trend.

Draw the Fibonacci Lines: Using Tradingview's Fibonacci Retracement Tool (ALT+F), draw a horizontal line from the swing low to the swing high (for an uptrend) or from the swing high to the swing low (for a downtrend).

Identify Key Levels: The lines you've drawn will automatically divide the trend into various retracement levels, as per the Fibonacci ratios mentioned earlier. The most common levels to pay attention to are the 38.2%, 50%, and 61.8% retracement levels.

Learn To Trade
Once you have spotted a strong trend on the chart, it's to be expected that the price will pull back somewhat, which is where you will be waiting as an expert trader.

Once the price starts pulling back, look at which Fibonacci Retracement it will stick. Once the price starts trading horizontally for a while, there's a decent probability that the Fibonacci Retracement will hold and that the price will continue its longer-term trend from there onwards.

To make this strategy even better, try to combine it with the RSI. A severely oversold RSI after a pull-back from a strong bullish trend is likely to find support at one of the key Fibonacci Retracements. Put it on your chart and see for yourself!

Note: this strategy is not a one-size-fits-all solution. Learn how to use it in conjunction with your current strategies. Use this strategy to create order in a world of chaos.

Why Does This Work
Like many other trading indicators and strategies, it's a self fulfilling prophecy. If a lot of people is watching a certain indicator or line, it's more likely that they will react to it.

Same reason that supports and resistances often cause reversals, same goes for longer period moving averages like the 50 and 200 period MA's.

Real Life Examples
In the screenshots below I'm going to show that the 0.382 / 0.5 / 0.618 Fibonacci Retracements offer strong support and resistance on Bitcoin's chart in practically every timeframe. Skilled traders were ready for the Fibonacci Retracements and got good entries in their trades.

Next time this can be you!