Hello and good day to everyone! This time I will give a guide on how to use Fibonacci retracement. A powerful tool that will surely help us or anyone in trading because it is very simple and available on all platforms. If you want to know where it is used or if it is effective,
What is the Fibonacci retracement?
This concept is derived from the Fibonacci Sequence, which was invented by Leonardo Fibonacci, an Italian math expert, in the 13th century. And the Fibonacci Sequence is the sequence of numbers on a consistent basis, an example is in the picture below:
The reason is that almost everything in the world is associated with Fibonacci. That's why advocates think that the Fibonacci movement is possibly also related to this. Because in any market, the price does not run in a straight line, Instead, there is often a pullback or retracement.
But how do we know how far the price pullback will go? And this is where the Fibonacci retracement comes in.
On any trading platform like Bitget, Binance, Bybit, and other exchanges, we have a Fibonacci tool that we can use. This is what it looks like:
But before we can use it, we need to identify the market structure first. We are looking for a swing-high and swing-low, and the market must be trending because we don't see anything like that in the trading range, and normally the price is just equal, like in this picture below.
What we see in the picture is the latest swing-high and Swing-low, the swing-high is the newly formed price. Now Fibonacci will be used this time from the Swing-Low, as in the image below, and you will drag it to the Swing-Hi, as in the image below.
We can see in the Fibonacci retracement in the picture that it has levels. But we often don't use the others. We only have to pay attention to these 3 levels, which are 38.2, 50.0, and 61.8. This 61.8 is what they call the Golden Ratio because it is said to be the most reliable of those three levels. But for me, that depends on a case-by-case basis. That's why, in the example you see, he has already bounced to the 38.2 level, but if that fails, the 50 or 61.8 level can follow. But the chart does not always look like that.
Now, let's look at the downtrend market.
Now we can see the levels at which the price can be rejected. Take note, normally, when the trend is strong, it often bounces at 38.2 levels or even 23, but as the pullback deepens and exceeds 61.8 levels, it means that the trend is weakening and it can go into a trend reversal.
The Fibonacci retracement is a powerful tool, but we cannot use it alone. Since we do not make decisions based only on what we see in the Fibonacci retracement, of course we need to accompany it with other confirmations. For example, we are trading with a trend that we use a moving average, support and resistance, and a reversal candlestick, but as I said before, Fibonacci retracement does not work all the time, so we still have to manage the risk of every trade we do because there is no perfect trade in each of the tools we use. So it is not surprising that many people find it difficult to understand trading because of the randomness that it shows, like what you set up yesterday was effective and the next day it was not.
That's all I hope this will help to everyone who wants to explore their knowledge
WHAT IS FIBONACCI RETRACEMENT?
