Fibonacci Retracements 1: Finding Entries In A Crypto Bull Market

Being long in a bull market can sometimes make it feel like money is raining down from the sky. And at times, that is not far from the truth. However, it’s critically important to keep a level head and remember why prices are going up.

The answer is really simple, and there’s no need to overthink it. There are, on average, lots more buyers than sellers. So the prices go up. Simple.

But staying disciplined in a bull market is critically important not just for your success, but also for your mental health. When the minds of the crowd are dazed in euphoria, the disciplined trader keeps an eagle eye on the state of the market, both psychologically and technically.

It is important to remember, at all times, that a bull market is not a straight line up. It is full of peaks and troughs, it has days that are heights of euphoria, followed by short times of panic and doubt. Of course, as long as the trend maintains up, and there remain more buyers and sellers, the price of an asset will continue going up, and there will be many more up days than down days.

But for a technical trader, “just buy” is too simple of an entry strategy. The kinds of question that you need to ask are where do I enter, how do I enter, and how can I protect myself by managing risk when I enter?

This is where the Fibonacci Retracement tool (called “fib” for short) comes in. When drawn and used correctly, fibs show you different levels that you can buy or sell at. These levels mean different things in different scenarios, and we’ll be going over some in this article, as well as some ideas on how to trade using fibs.

It is important to remember that the fib, like any tool, is an indicator. It is not a predictor of the future. But, when used correctly, it can give you a very clear picture of what is going on in the present, including ideal entry/exit points in the short term. Using indicators correctly will help you manage risk, which ultimately leads to consistent profits.

Firstly, what is the fib tool and how do you draw it? Well, in your TradingView chart, go to the left side, select the drawing icon 3 icons down, and find Fib Retracement. I would recommend watching this video to cover some of the basics, before proceeding: https://www.youtube.com/watch?v=l2ZEzClqp4g

The point of a fib retracement is to show support and resistance lines in the aftermath of a trend. For example, GRT went from 136 sats to 3293 sats in the chart above. That is a trend, defined by higher highs and higher lows, so you draw the fib retracement from the bottom of the trend to the top. The tool then outputs lines at certain levels: 0.236, 0.382, 0.5, 0.618, and 0.786. These lines are percentages of the total trend length. 0 and 1 are also included, but I don’t view them as fib levels because they are support and resistance for a different reason (namely, being the bottom or top of a price movement!).

Now, in order to know how to use the fib tool to make good trades, you need to know what the different fib levels mean. When drawn from the bottom to the top of an uptrend, here are what the different fib levels mean:

0.236: If the price finds strong support at the 0.236, it means that the trend is continuing and price is likely to continue going up. This is especially true after a sudden leg up, which can end up being the first leg up in an uptrend.

0.382: If the price finds support at 0.382, it means the bulls are still in control, as they are holding the price relatively high. If the price gets support at the 0.382 and then continues up past the 0.236, it is generally an uptrend continuation signal.

0.50: If the price reaches the 0.50, it is generally a sign of neutrality which means the uptrend is weakening. Look for other signals to determine if you want to trade at this level. The exception is that if a coin is moving sideways for a long time and then makes a sudden spike up, it often finds support at the 0.50 and then rockets up again. If it doesn’t, it’s still a relatively safe entry that’s low enough in the trend to be a low risk entry.

0.618: After a large trend, the 0.618 is a level to look for a reversal of the downward move. Many large moves begin as a reversal at the 0.618. If there are no significant bounces off of the 0.618, or the bounces get rejected, the buyers are just not interested in driving the price up.

0.786: If the price reaches the 0.786, it is a sign that many buyers have capitulated and are giving up. However, this is an opportunity if you are looking to enter. Rounded bottoms at the 0.786 are ideal entry points.

Now, I know that’s a lot to take in and some actual examples will be needed to further illustrate these points. More examples and trading strategies will be posted in following articles.

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