# Fibonacci Levels and How They Can Be Used in Trading

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INDEX:BTCUSD   Bitcoin
Greetings, @TradingView community! This is @Vestinda, bringing you a helpful article on the topic of Fibonacci Retracements and how to effectively utilize them in your trading strategies.

Fibonacci retracement levels are helpful for traders and investors in financial markets. They're horizontal lines on price charts that can show where price may reverse direction.

These levels are based on the Fibonacci sequence, which is a series of numbers that occur in math and finance.

Use case:

The first thing to understand about the Fibonacci tool is that it is most effective when the market is trending.

In an upward trending market, traders commonly use the Fibonacci retracement tool to identify potential buying opportunities on retracements to key support levels. Conversely, in a downward trending market, traders may look for opportunities to short sell when the price retraces to a Fibonacci resistance level.

Fibonacci retracement levels are regarded as a predictive technical indicator because they attempt to forecast where the price will be in the future.

Based on the theory, when trend direction is established, the price tends to partially return or retrace to a previous price level before continuing to move in the direction of the trend.

How to Find Fibonacci Retracement Levels:

Fibonacci retracement levels can be found by identifying the key Swing High and Swing Low points of an asset's price movement. Once these points are established, you can use the Fibonacci retracement tool, which calculates the potential levels of support and resistance based on the ratios between the key points.

To apply the Fibonacci retracement tool, click and drag from the Swing Low to the Swing High in a downtrend, or from the Swing High to the Swing Low in an uptrend. This generates a set of horizontal lines at predetermined Fibonacci ratios, including 23.6%, 38.2%, 50%, 61.8%, and 78.6%.

Are you keeping up with me? ;)

Now, let's explore some examples of how Fibonacci retracement levels can be applied in cryptocurrency trading

The Uptrend:

In this instance, the Fibonacci retracement levels were plotted by selecting the Swing Low and Swing High points, which were observed on January 8th, 2021 at a price of \$41,904.

The Fibonacci retracement levels were \$33,521 (23.6%), \$29,197 (38.2%), \$26,114 (50.0%*), \$23,356 (61.8%), and \$19,925 (76.4%), as shown in the chart.

Traders anticipating that if BTC/USD retraces from its recent high and it will likely find support at a Fibonacci retracement level. This is due to the tendency of traders to place buy orders at these levels as the price drops, creating a potential influx of buying pressure that can drive up prices.

While the 50.0% ratio is not officially recognized as a Fibonacci ratio, it has nonetheless become widely used and has persisted over time.

Now, let’s look at what happened after the Swing High occurred.

Price bounced through the 23.6% level and continued to fall over the next few weeks.

Two times tested 38.2% but was unable to fall below it.

Subsequently, around January 28th, 2021, the market continued its upward trend and surpassed the previous swing high.

Entering a long position at the 38.2% Fibonacci level would have likely resulted in a profitable trade over the long run.

The Downtrend

Next, we will explore the application of the Fibonacci retracement tool in a downtrend scenario. Here is a 4-hour chart depicting the price action of ETH/USD.

As you can see, we found our Swing High at \$289 on 14 February 2020 and our Swing Low at \$209 later on 27 February 2020

The retracement levels are \$225 (23.6%), \$236 (38.2%), \$245 (50.0%), \$255 (61.8%) and \$269 (76.4%).

In a downtrend, a retracement from a low could face resistance at a Fibonacci level due to selling pressure from traders who want to sell at better prices. Technical traders often use Fibonacci levels to identify areas of potential price resistance and adjust their trading strategies accordingly.

Let’s take a look at what happened next.

The market did make an attempt to rise, but it briefly halted below the 38.2% level before reaching the 50.0% barrier.

The placement of orders at the 38.2% or 50.0% levels would have resulted in a profitable trade outcome.

In these two instances, we can observe that price positioned itself at a Fibonacci retracement level to find some temporary support or resistance.

These levels develop into self-fulfilling support and resistance levels as a result of all the people who utilize the Fibonacci tool.

All those pending orders could affect the market price if enough market participants anticipate a retracement to take place close to a Fibonacci retracement level and are prepared to enter a position when the price hits that level.

In conclusion:

It's important to note that pricing doesn't always follow an upward trajectory from Fibonacci retracement levels. Instead, these levels should be approached as potential areas for further research and analysis.

If trading were as simple as placing orders at Fibonacci retracement levels, markets wouldn't be so volatile.
However, as we all know, trading is a complex and dynamic process that requires a combination of knowledge, skill, and experience to succeed.

We are truly grateful for your attention and time in reading this post. If you found it insightful and beneficial, we would be thrilled if you could show your support by clicking the <<boost>> button and subscribing to our page.

We are excited to share that our upcoming post will showcase what occurs when Fibonacci retracement levels do not perform as expected. Stay tuned for an informative and professional read.

Comment:
Unfortunately, Fibonacci retracements are not infallible and may not always work as expected.
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