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00:00This video is sponsored by BitGet, the leading cryptocurrency copy trading platform.
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00:10In this video, I'll be showing you everything you need to know about Fibonacci retracements
00:15and how you can use it in combination with price action.
00:19And so, what you'll learn from this video is first, how to actually plot them properly
00:23onto a chart.
00:24Second, how to find high win rate trade entries using Fibonacci levels.
00:29And third, how to properly exit your trades to get as much profit as possible.
00:35Now let's start with the basics.
00:39What are Fibonacci retracements?
00:41So Fibonacci retracements are key levels based on the Fibonacci number that lets you identify
00:47the end of a pullback.
00:48And we can generate these levels by using a tool called the Fibonacci Retracement tool.
00:53Now the question is, why should you use this tool to identify pullbacks?
00:58Let me give you a scenario.
01:00So let's say that the current market is trending and you're looking to enter a position.
01:04Now we know that the best time to enter a position at a trending market is to wait for the trend
01:09to make a pullback.
01:11So as price makes a pullback, you can enter a buy position at the end of the pullback
01:16before the price continues with the main trend.
01:19And so, how do we know that this point will be the end of the pullback?
01:23Well, in my previous video, I mentioned that a pullback tends to end at a previous key
01:28level, like in this example.
01:30Here, we can see that the price went up and consolidates at this level, making this a level
01:35of resistance.
01:36Next, we saw the price broke through the resistance level and made a pullback.
01:41Now notice where the pullback ended, the previous resistance level that we drew earlier.
01:46And so it's widely known that pullbacks tend to end at a key level.
01:50However, what if the chart looks like this instead?
01:53Where the price went up and made a pullback, but there are no previous key level.
01:58How do we know when this pullback will end?
02:01And this is where the Fibonacci retracement tool comes in.
02:04So as I plot the tool onto our chart, notice that we now have these Fibonacci based key
02:10levels generated by the tool.
02:12And as you can see, the price hits one of the levels and bounced upwards.
02:18So it's widely known among traders that price tends to respect these levels.
02:23Another example of this would be the S&P 500 market crash back in March 2020.
02:28So here, as we apply the Fibonacci retracement tool, you can see that the level predicted the
02:34exact bottom of the market crash.
02:37And now, I'm going to show you how to apply this tool onto your chart and how you can use
02:42it to find high win rate trade opportunities.
02:45Now, if you're using TradingView, the Fibonacci tool can be found on the right side of the screen.
02:51So you click it and select Fibonacci retracement.
02:55Now for the settings, I want you to copy this exact value so that it'll be easier for you
03:01to follow along.
03:03And so here's how you apply the tool onto your chart.
03:07So the first step is you want to find a clear trend.
03:11Like in this example, here we can see that the market is clearly moving upwards.
03:16Now once you've identified the trend, the next step is applying the Fibonacci retracement.
03:22So to apply the Fibonacci retracement, you first need to identify both the swing low and the
03:27swing high of this trend.
03:29So a swing low refers to the lowest point the price reached before reversing upwards.
03:35And over here, we can see that the price slightly went down before reversing back up.
03:40And at this period, this was the lowest point.
03:43And so this will be our swing low.
03:45Similarly, a swing high refers to the highest point the price reached before reversing downwards.
03:51Like in this example.
03:52Up here, we can see that the price went up and slightly made a pullback.
03:56And at this period, this was clearly the highest point.
04:00And so this will be our swing high.
04:02And remember, in order to identify a swing high, a small pullback at the end of the trend
04:07needs to happen first.
04:09Now, once you've identified the swing high and the swing low, the next step is drawing
04:14the Fibonacci tool by connecting the swing low to the swing high and then drag it to
04:19the right to extend the levels.
04:21Now notice that I'm connecting them at the end of the candle's wick.
04:25And as you can see, we now have the Fibonacci levels in place.
04:29And again, I advise you to follow the custom settings that I have so that it'll be easier
04:33for you to follow along.
04:35So now, I'm going to show you how to utilize these levels.
04:39So starting from the top, you have your 0% level, which is basically your starting level.
04:45And below that 0% level are your Fibonacci retracement levels, which are levels where the
04:50price may pull back into.
04:52Now, the most common level where the price may pull back into are these three levels.
04:5838.2%, 50%, and 61.8%.
05:03These three levels are called the golden zone.
05:05However, that doesn't guarantee that the price will reverse at these levels.
05:10It can always break right through and go towards the deeper levels like the 78.6% and the 100%.
05:17Now, the 100% level is the maximum level where the price can still be considered as a pullback.
05:23Let me explain.
05:24So if the price moved downwards but remains above the 100% level, it indicates that this
05:29downwards movement is still considered as a pullback.
05:33Meaning, there's a chance that the price can still go back upwards.
05:37But if the price moved downwards but breaks below the 100% level, it indicates that this
05:42downwards movement is no longer considered as just a pullback.
05:46But rather, it can already be classified as a downtrend.
05:49Meaning, the price is more likely to continue downwards instead.
05:53And so, if the price breaks below the 100% level, you cancel your trade and look for other
05:58opportunities.
05:59Now, a key point that you need to remember is that you need to treat these levels exactly
06:04like support and resistance.
06:06Meaning, we treat them as areas, not as solid lines.
06:11So now the question is, how do we know at which level will the pullback end?
06:16Well just like normal support and resistance, you cannot immediately take positions just
06:20because price touches one of the levels.
06:23You need to wait for confirmation by looking at the price action.
06:26Let me show you an example.
06:29So here, we can see that the price made a slight consolidation, then proceeds to break below
06:35the 38.2% level.
06:38Now, what this shows us, is that price is clearly not respecting this level, because
06:43it showed no reaction at all.
06:45Meaning, the price will not likely bounce at this level.
06:49Next, we can see that it also broke the 50% level without any reaction.
06:55Again, indicating that the price doesn't respect this level.
06:58Now, as price approaches the 61.8% level, notice what's happening.
07:04The price showed a small reaction at this area, as it failed to break below it multiple times.
07:10But remember, a reaction doesn't equal a trade, because price can always react to
07:14a level, but still break right through.
07:17And so you need further confirmation.
07:19Next, we also spotted a bullish engulfing pattern, which is when the second candle's
07:24body completely covers the previous candle.
07:28And so what this shows us is that, not only do we have a reaction at this area as shown
07:32by these candles rejecting, but we also have upwards momentum as shown by this bullish engulfing
07:37pattern.
07:38Then, to further confirm the upwards momentum, we can see that the next candles after that,
07:44are multiple green candles breaking above resistance at the 50% level.
07:49Now, let's recap what we have currently.
07:52First, we have price showing a reaction at the 61.8% level, as shown by multiple candles
07:58failing to break below it.
08:00Then, we have a bullish engulfing pattern indicating that there's some sort of upwards momentum
08:05at this level.
08:06And finally, we have multiple green candles breaking above the resistance at the 50% level,
08:12which further confirms the upwards momentum that we already have.
08:16So based on the price action, it is likely that the price will bounce off at this level.
08:21And so this is a good opportunity to take a long position.
08:24Now, just in case the trade fails, you need to have your exit strategy in place.
08:29So for your stop loss, you can place it at the swing low.
08:33And for your profit target, I like to set it at the 0% level.
08:37And as you can see, the price hits our profit target, and so this counts as a successful
08:45trade.
08:46Now moving on.
08:48You can also combine existing support and resistance levels with Fibonacci levels to
08:53create an area of confluence, like in this example.
08:56So here, we can see that the price went up and made a slight pullback.
09:00And so you can apply the Fibonacci tool to predict the end of this pullback.
09:04And again, you connect the swing low to the swing high, and drag it to the right to extend
09:09the levels.
09:10Now the next step is to wait for the price to show reaction to one of these levels.
09:15And as you can see, the price made a pullback towards the 38.2% level and showed a slight
09:22reaction as seen by these three candles consolidating at this level.
09:26But again, a reaction doesn't equal a trade, because price can always react to a level,
09:32but still break right through.
09:34And so we also need signs of upwards momentum.
09:37And after that, we can see the price broke below the 38.2% and ended up at the 50%.
09:45Now if you look closely, you can actually see that this level is also aligned with the previous
09:50resistance level.
09:52Because at one point, the price went up to this level and reverses downwards, meaning
09:56we now have an area of confluence.
09:58And usually, price has a higher chance of bouncing at this level.
10:03And to further confirm that, we can see that the next candles after that are multiple green
10:09candles breaking above the 38.2% level.
10:13So let's recap what we have currently.
10:15First, we have price pulling back towards an area of confluence, which is a Fibonacci level
10:20and a resistance level at the same time.
10:23And second, we can also see signs of upwards momentum indicated by multiple green candles
10:28breaking above the 38.2% level.
10:31So based on this, we can conclude that the price will likely bounce at this level.
10:36And so this is a good opportunity to take a long position.
10:39Now, let's look at an example of what a bearish Fibonacci retracement looks like.
10:48So again, since it's bearish, the first step is finding a downtrend.
10:52And in this chart, we can see that the price moved downwards.
10:55Now, here's where people tend to get confused.
10:58If you look to the right, you can actually see that the price moved upwards before going
11:03downwards.
11:04And so the question is, how do we know that this downwards movement is a downtrend itself
11:08and not just a pullback as part of this uptrend?
11:11Well, the way we know that is by identifying the long-term trend using the 200 EMA indicator.
11:18And in this example, we can see that the price is below the 200 EMA, meaning this downwards
11:24movement is in fact a downtrend.
11:26Now, once you've identified the downtrend, the next step is applying the Fibonacci retracement
11:31tool.
11:32And since it's bearish, you want to start from the swing high and connect it to the swing
11:37low.
11:38And again, drag it to the right to extend the levels.
11:41The next step is wait until the price shows a reaction to one of the levels.
11:45So as you can see, as price approaches the 38.2% level, we spotted multiple small candles
11:52failing to break above the level, indicating that the price is actually reacting to this
11:56level.
11:57Next, we can see a green candle that broke through the 38.2% level, immediately followed
12:05by a big red candle that engulfs the previous candle.
12:09So what this shows us is that, at one point, buyers pushed the price upwards, as shown by
12:13this green candle breaking above the 38.2% level.
12:17But then sellers came in stronger and pushed the price back down, even as far as surpassing
12:21the previous candle's opening price, indicating that there's actual downwards momentum at
12:26this area.
12:28So again, let's recap what we have currently.
12:31First, we have price pulling back towards a Fibonacci level.
12:34Second, we have price reacting to that Fibonacci level.
12:39And third, we spotted a bearish engulfing pattern indicating that there's some sort of downwards
12:43momentum as price touches this area.
12:46So based on this, it is likely that the price will bounce off at this level.
12:51And so this is a good opportunity to take a short position.
12:56And that's how you utilize Fibonacci retracements to find trade entries.
13:00Now to summarize, here are 4 key takeaways from the video.
13:04The first one is that Fibonacci levels behave exactly like support and resistance, so treat
13:09them as areas, not as solid lines.
13:12Second, before plotting the Fibonacci retracement, make sure to identify the long-term trend first.
13:18And you can do that by using the 200 EMA.
13:20Third, always wait for confirmation before entering a position.
13:25And fourth, you can combine previous support and resistance levels with Fibonacci levels
13:29to create an area of confluence.
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14:34Thank you so much for watching and I'll see you in the next video.
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