Learn how to use Fibonacci properly and how to draw Fibonacci retracements

If you are not sure when and how to draw Fibonacci retracements, watch our latest video and see how to use Fibonacci properly, in order to be accurate.

How to use Fibonacci properly – a trader’s guide for success

Hello, and this is Diary of a Trader. Welcome to this next video. Today, I want to go over something that a lot of traders are familiar with, they’ve heard it all the time, there’s plenty of educational videos and information about it out there, but one of the things that I think we don’t discuss enough is how to properly implement this tool. These are Fibonacci retracements and a lot of times people just take a high and a low in a five-minute chart, or they’ll take a high and a low in a 15-minute chart and they’ll just draw these Fibonacci retracements and they’ll just trade often that. And there’s really, inherently, nothing wrong with that because Fibonacci retracements, they are going to be accurate, depending on the scale you use. However, they’re not always going to be sensitive.

If we go from swing to swing we see a lot of people like to take retracements off of the 50%, or the 61.8% retracements. In this case, the swing went all the way to 78.6%, which is a strong reversal zone. We could even go further back here and test this zone here if we wanted. This is in the Ethereum-Dollar pair. You know, it’s which retracement are you comfortable taking your short at. And on smaller time frames, we just get a lot of zigzagging and moves and prices and just not a lot of strong correlation because we could take a swing from here, we could move it from this swing to this swing, we could really go wherever we wanted. So, the important thing is that we know how to draw them, and then when to place them. That is the next most important thing. So, I never like to place a Fibonacci retracement on anything less than a daily and a weekly chart. I just don’t. And it doesn’t work so well on shorter time frames because there’s too much noise. But, on longer time frames, you’re going to find that the Fibonacci levels in a retracement, are going to be extremely accurate, they’re going to be extremely sensitive to price rejection and they’re going to be extremely consistent. For example, if we take a Fibonacci level from here to here, in Ethereum, or we can even go to the first real pullback zone, maybe breakout zone, if we want to call it that, from back here. You know, we could say that this may be our first kind of real pullback zone, the first real swing or low before we had our all-time high. We would say that this is probably what we want to look at. And, so we look at the weekly chart, we see, you know, these are levels, and typically, what we see is that when prices fall and they return to the 50% level, that’s where we get a lot of rejection and that is right where we had price have it’s first kind of swing high rally, back in March, all the way up to April, and the very end of April. And that 50% zone is where we found a whole lot of selling pressure.

Let’s bring it back down to the daily. And we can see that Fib levels, actually, on the weekly charts, they do act as very natural strong support and resistance zones. And, in this case, right here, we can see that we are currently facing a lot of support, right now, at the 78.6% level. But, having a long Fib retracement is something that everybody should do, you should have a major Fib swing in your charts, depending on what you trade. So, if I’m trading the Ethereum… Well, this is the dollar, but the dollar, the Tether, the Ethereum-Tether pair. And this is my swing range, then I know that on a long time frame, from a swing low to the all-time high, that this is the Fib level zone that I’m trading in, and this is what I want to pay attention to. But we also want to look at the levels inside, as we are trading in a current price range, and a current swing, so, if I’m looking at, well, let’s see here, let’s take… Well, let’s take this current swing here. If we do from this swing low to this swing high, and we could actually make these easier on the eyes, let’s make these levels a little thinner. Zoom in here. And what do I see? What do I see? Well, I see that there is something cool that happens, not very often, but when it does, it’s a pretty powerful sign. Right here, this major swing, this 78.6% Fibonacci level is the same as this swing low to this swing high. The Fibonacci level in here, if I move this up a little bit, you can see that 78.6 line. That’s a shared Fibonacci level. Now, that is, generally, a pretty powerful sign of support or resistance, and for right now, we’re looking at this as a pretty powerful sign of support. We can couple that with looking at the low here, in our Composite Index, that is sloping up and then we look at the Stochastic RSI as well, which is sloping up and coming out of oversold territory. So, all of this right here, the price action, the current buying tails on the candlesticks, this is all indicating a strong, supportive, buying condition and that is reinforced heavily by the fact that we have a major 78.6% Fibonacci level, that was found the support, followed by our current swing low, shorter-term swing low-swing high Fibonacci support is the exact same 78.6% Fibonacci level.

And this is really, in my opinion, the proper way to apply Fibonacci retracement, is on major swings of a weekly and a daily chart. And I believe you will save yourself a lot of headaches and a lot of frustration with your Fibonacci retracements if you limit the use of them to only being applied on weekly and daily charts. And on those major swings, and that can help you with a lot of the anxiety that can be accompanied. I also just want to take a quick look at the Fib retracement of the swing low here. Swing high to this most recent swing low. And we can see that that was a resistance zone right up here this Fib level. Something to keep an eye on, something that anybody can easily apply to their trading and that can help you immensely in finding those natural turns in a market. Hope this video finds you well and I look forward to talking with you in our future videos. Bye-bye.