Learn Fibonacci Retracement usage with Capital Cat

Hello, this is Capital Cat! Fibonacci retracement is a powerful tool traders use to predict price reversal points. This time, we will explain its use in an easy-to-understand way.

1. What is Fibonacci Retracement?

Fibonacci retracement is a price analysis tool based on the Fibonacci sequence. It is mainly used to predict how far a price may rebound. Common retracement levels are 23.6%, 38.2%, 50%, 61.8%, and 100%.

2. Basic usage of Fibonacci Retracement

1. Identify the trend

   Fibonacci retracement is effective when there is a clear trend. Confirm whether it is an uptrend or a downtrend.

2. Set the highs and lows

   Find the start and end of the trend, and set its high and low. In an uptrend, draw the retracement from the low to the high. In a downtrend, draw from the high to the low.

3. Draw the Fibonacci retracement

   Using chart tools, draw the Fibonacci retracement between the set high and low. This displays the levels where price may rebound.

3. Interpretation of Fibonacci Retracement levels

• 23.6% retracement: A shallow retracement suggesting the strong trend may continue.
• 38.2% retracement: A relatively shallow retracement with a possibility the trend continues.
• 50% retracement: A mid-point of the trend, a commonly observed rebound point.
• 61.8% retracement: Also called the golden ratio, often functioning as a strong rebound point.
• 100% retracement: A complete retracement, indicating the trend may fully reverse.

4. How to use Fibonacci Retracement

1. Identify entry points

   Use Fibonacci retracement levels to identify entry points. For example, consider entering when price reaches the 38.2% or 61.8% retracement level.

2. Set take-profit points

   Retracement levels can also be used as take-profit targets. Set target prices at Fibonacci retracement levels and systematically lock in profits.

3. Set stop-loss

   For risk management, set stop-losses based on Fibonacci retracement levels. It’s important to have appropriate stops in place in case the trend does not go as expected.

5. How to implement the strategy

1. Confirm the trend and draw Fibonacci retracement

   • Find the start and end of the trend and draw the Fibonacci retracement.

2. Set entry points at retracement levels

   • Set each retracement level (23.6%, 38.2%, 50%, 61.8%, 100%) as an entry point.

3. Apply averaging down (nampin) and martingale

   • Enter a position at the initial entry point.
   • If the price falls further, use averaging down at the next retracement level and add to the position. In this case, double the investment amount.

4. Risk and capital management

   • Calculate the investment at each retracement level and ensure you have enough funds to withstand the maximum price movement.
   • Set stops appropriately to prevent unexpected large losses.

6. Concrete scenarios

• Scenario 1: Uptrend

  1. Draw Fibonacci retracement from the swing low to swing high.
  2. Enter the first time when price reaches the 38.2% retracement level.
  3. If price reaches the 50% retracement level, double the investment and add another entry.
  4. If price reaches the 61.8% retracement level, again double the investment and enter.
  5. Close positions at appropriate take-profit points on rebound.

• Scenario 2: Downtrend

  1. Draw Fibonacci retracement from the swing high to the swing low.
  2. Enter the first time when price reaches the 38.2% retracement level.
  3. If price reaches the 50% retracement level, double the investment and add another entry.
  4. If price reaches the 61.8% retracement level, again double the investment and enter.
  5. Close positions at appropriate take-profit points on rebound.

7. Cautions and tips

• Strict money management: Ensure sufficient funds to cover the maximum price movement.
• Analyze historical data: Analyze past maximum movements and plan risk controls if movements exceed them.

• Use multiple tools together: Fibonacci retracement is more effective when used with other technical tools (e.g., moving averages, RSI).
• Consider market conditions: Fibonacci retracement is a guide. It’s important to consider market news and fundamentals as well.
• Practice and experience: Draw Fibonacci retracement on charts and observe many cases to gain experience.

Message from Capital Cat

Fibonacci retracement is a very helpful tool when forming a trading strategy. Used correctly, it helps identify entry points and take-profit targets. Join me in mastering this tool and aim for more effective trading!

Let’s grow together in the world of investing and achieve success!

Nampin-Martingale simulation sheet (800 yen) now on sale!

From here, this is a paid article, and we will tell you the password to download the “Nampin-Martingale Capital Simulation”.