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Illustrating Fibonacci Retracement Areas on Both Upward and Downward Bitcoin Trends

The price of Bitcoin Currency doesn't move up/down in a straight line. Instead price of Bitcoin moves up or down in a zigzag manner. Fibonacci Retracement is the trading tool used to calculate/estimate where the zigzag will stop. The pull-back levels are 38.2 %, 50 % and 61.8%. These points form the levels at which the market is likely to make a retracement.

What is retracement? A retracement is a pull-back of the price before the market resumes the original trend/initial direction of movement.

Illustration of zigzag movement: The figure below demonstrates price movements in a zigzag format.

The subsequent visualization illustrates this dynamic within a market exhibiting an uptrend.

How to Create Fibonacci Retracement Levels for Both Upward and Downward Bitcoin Trends

Sequence: Price Rises (1 to 2), Price Retraces (2 to 3), Price Rises (3 to 4), Price Retraces (4 to 5), Price Rises (5 to 6).

Now that we can pinpoint the starting location of a pullback on a Bitcoin price chart, the next challenge is determining the extent of that pullback.

The answer is we use Fib retracement areas

To forecast and determine the retracement areas of the market price, this kind of line analysis is used in BTCUSD trading. The Fibonacci retracement levels indicator will then automatically calculate these price pull-back zones on the BTC/USD cryptocurrency chart, as the Fibonacci retracement indicator is situated right on the Bitcoin price chart within the MT5 platform program given by your online broker.

Fibonacci retracement levels include 23.6%, 38.2%, 50%, and 61.8%.

The 38.2% and 50% retracement levels are commonly used in technical analysis. Price pullbacks tend to reach these levels, with the 38.2% Fib retracement being particularly popular and widely utilized.

The 61.8% Fibonacci level often sets stop losses in this strategy. Prices rarely reach this level during pullbacks.

This Fib retracement zones tool will be drawn in direction of the Bitcoin price trend as is explained in the examples below.

Drawing Fibonacci Retracement Areas in an Upward Market Trend.

In the chart below, Bitcoin's price climbs from point 1 to 2. After reaching 2, it pulls back to the 50% Fibonacci retracement level, then continues moving up, sticking with the original upward trend. To draw the indicator, start at point 1 and drag it to point 2, following the direction of the price.

Because we think this is just a temporary change based on using the Fib retracement level indicator, we place a buy order between the 38.2% and 50.00% retracement levels, with our stop loss just below the 61.80% retracement level. If you had bought at this point in the example below, you would have gained a lot of money, as you can see.

Drawing Fibonacci Retracement – For Upward and Downward Bitcoin Trends

Fib Retracement Levels Drawn on an Upward Bitcoin Price Trend

Fibonacci Retracement Trade Setup Example Explained

Once the Bitcoin price hit the 50.0 percent Fib retracement level, this zone provided a lot of support for the market price, and afterwards the market then resumed the original upwards trend and continued to move up.

The 23.6% Fibonacci retracement level offers minimal support and is generally not recommended for placing orders.

The 38.2% Fibonacci retracement level offered some price support: however, in this specific illustration, the price continued its downward movement until it reached the 50% retracement mark. Traders frequently choose to place their buy limit orders at this 38.2% Fib retracement level.

The 50.0% Fibonacci retracement level provides significant support. In this situation, it was highlighted as an ideal entry point for placing a buy order.

In this example, the price retracement reached the 50.0% retracement level. However, market retracements often go up to 38.2%. For this reason, Bitcoin traders commonly set their buy-limit orders at the 38.2% Fibonacci retracement level and place their stop-loss orders just below the 61.8% level.

Drawing Fibonacci Retracement Zones for a Market Exhibiting a Downward Trend

In the chart below, the market falls from point 1 to point 2. After point 2, it pulls back up to the 38.2% Fibonacci retracement level. Then it keeps dropping in the main downtrend. The Fibonacci retracement tool is drawn from point 1 to point 2. It follows the Bitcoin price's downtrend.

Because we know this is just a pull-back we put a sell order at 38.2% Fib retracement level & a stoploss order just above 61.80 % Fib retracement level.

Placing a sell order at the 38.2% Fibonacci retracement level in the trade example would have brought big profits later. The pullback reached 38.2% but stopped short of 50%. From past trades, the 38.2% level works well for BTCUSD because pullbacks rarely hit 50%.

Draw Fibonacci on Bitcoin Charts - Fibonacci Retracement on Up or Down BTCUSD Trends

Fib Retracement Levels Drawn on a Downward Bitcoin Price Trend

Fibonacci Retracement Trade Setup Example Explained

The above example is the perfect setup where the price retraces immediately after touching the 38.2 % Fib retracement level.

This Fib retracement zone provided a lot of resistance for the market price pull-back: this was the best place for a BTC/USD Crypto trader to place a sell limit order as the market quickly headed downwards after hitting this 38.2 % Fib retracement level. For this trade a trader would have put their stop loss order at the 61.8 % Fib retracement level.

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