🧘♂️The Golden Indicator
Market Meditations | May 12, 2021
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Dear Premium Meditators
Welcome to Part 2 of our 3 Part Technical Indicators Series.
Today, we explore Fibonacci Retracement.
Read, enjoy and share with your network. Let’s all build wealth together.
Welcome to Part 2 of our Technical Indicators course.
GOAL: Start using technical indicators in your crypto trading and investing
EFFORT: 15-30 mins to get started with each indicator
REWARD: Potentially unlimited upside if you can master an indicator
Missed Part 1? No Problem. Check it out here first ? Moving Averages.
Part 2 today will focus on Fibonacci Retracement.
Fibonacci Retracement: As Confusing As It Sounds?
Markets consist of supply and demand imbalances. There are certain prices where traders want to bid aggressively (known as demand zones) and certain prices where traders want to sell aggressively (known as supply zones). If you want an in-depth tutorial on supply and demand, check out our YouTube video here.
?Fibonacci levels are simply areas where price is likely to find an aggressive bidder (area of support) or aggressive seller (area of resistance).
It is not necessary to understand the way the Fibonacci retracement levels are calculated as trading software today will do this for you, but you should be aware of the most commonly used Fibonacci retracement levels among traders:
? 23.6%, 38.2%, 50%, 61.8%, and 78.6%.
The percentages mark our key levels price often retraces to after a move up or down. Where the move begins is known as the base. Where the move ends is known as the top.
For example, if price comes down to the 23.6% level after a move up from the base, that means it has retraced 23.6% from the top of the previous move. Let’s take a look at how to draw Fibonacci levels.
How to Draw Your Fibonacci Levels
? There is no right or wrong way to draw Fibonacci levels, If you decide to integrate Fibonacci levels into your trading system, however, make sure the method you use is consistent.
Otherwise, you’ll risk your past data not being helpful in the future. We’ve posted an image of the TradingView settings we use for Fibonacci retracement below. Check out our Beginner’s Guide to Trading Fibonacci Retracements & Extensions where we hold your hand through the setup process.
Here’s one method to consider when drawing Fibonacci levels ?
Drawing Your Base: locate a candle body or wick where the trend began or at a lower low.
Drawing Your Top: locate a candle body or wick where the trend ends or at a higher high.
You can see in the example below that during this uptrend, we’ve chosen our base to be at $6855.87 and our top to be at $8472.55, the swing low and high of this move. Moreover, you can see that after the price hit a higher high, it retraced exactly 50% of the move, touching the 0.5 Fibonacci level to the dollar. Note, whilst we have provided an example in an uptrend, this tool works in a downtrend as well.
? Often, price will move upwards, pause by retracing a little bit, and then continue moving higher.
Is that technically considered a swing low? You may ask yourself, “how do you define a top in such cases where the price continues to move higherwithout any meaningful retracement?”
Remember, there is no end all be all answer and the most important thing is finding a system that you use consistently.
One strategy in these situations, however, is to trail the top until the move has retraced sufficiently.
We consider a move that has touched the 0.382 Fibonacci level as “retraced sufficiently.” It’s not enough to move the swing low, in our trading system, if the price only retraces to the 0.236 level.
So in a situation where the price moves up to $X, retraces to the 0.236, and then continues up to $Y, we would keep our original swing low as the base, but move our top from the original $X to $Y.
In other words, we keep moving the top up until price retraces to the 0.382 level. We’ve published a YouTube video wherein Koroush trails a top if you’d like to learn more.
Using Fibonacci Retracements in Your Trading
One of the most helpful functions of the Fibonacci tool is to aid in determining the strength of a trend. Put simply, the more the price retraces a move, the weaker the trend is. The less the price retraces a move, the stronger that trend is. Let’s define this more quantitatively.
Price retraces only to the 0.236 level ➡️ extreme strength.
Price retraces to the 0.382 level ➡️ high strength.
Price retraces to the 0.5 level ➡️ normal strength
Price retraces to the 0.618 level ➡️ below average strength
Price retraces to the 0.786 level ➡️ weak strength
? In addition to trend strength, you can utilise Fibonacci levels to find high probability areas for support and resistance. This is especially helpful when there is limited price action. In this regard, Fibonacci extensions can help you determine potential upside targets. For example, you might create a system in which you long the potential support of an extremely strong trend at the 0.236 level and sell when price creates a higher high at the -0.236 level. When it comes to Fibonacci extensions, the stronger the trend the further you expect price to extend. Only by testing, however, can we get a better idea of the probability of each level of support and resistance holding. Check out our podcast episode to learn more about emerging crypto trends at a macro level.
? Of course, there are also limitations to trading with Fibonacci levels. Just like any other indicator, they should be used as confluence to take on high probability trades, not as signals to enter and exit a trade. It’s also important to mention that proper risk management is paramount: just because you have a 0.382 level drawn on your chart does not mean price has to find support there. Use indicators like Fibonacci levels as confluence with proper fundamental analysis, price action, and other indicators of your choice to take on high probability trades. In Part 1 of this 3 Part series, for example, we discussed Moving Averages. If you saw that a 0.382 retracement level lines up perfectly with the 4H SMA, for example, this can be a high probability long if you’ve taken care of your risk management.
Crypto To Replace The Dollar?
Yesterday morning, hedge fund and forex titan Stanley Druckenmiller said on CNBC that:
The dollar is out as the world’s reserve currency within 15 years.
His comments were focused on the Fed’s commitment to low interest rates and U.S. debt bond buybacks
The most likely candidate to replace it is crypto.
With the euro a basket case and the Chinese Community Party-backed yuan still viewed with suspicion, Druckenmiller doesn’t see another fiat currency that can play the universal meditation role of the dollar anytime soon. Instead, he thinks “the most likely replacement” for the dollar would be a “crypto derived ledger system”.
This is a surprising set of statements from Druckenmiller, considered by some to be the greatest foreign exchange trader in history. Druckenmiller reportedly invested in Bitcoin earlier this year and told Squawk Box that it’s unlikely that Bitcoin will be usurped by other cryptocurrencies as the top store of value asset.
✅ For crypto supporters and advocates, his comments are a strong reinforcement.
❌ For non-supporters, such a comment from a figure as reputable as Druckenmiller will certainly be taken into consideration.
Uniswap’s UNI as an Oracle Token
Ethereum creator Vitalik Buterin has proposed that Uniswap’s UNI should become an oracle token for a successful DeFi ecosystem. Chainlink is “great”, but there is room for an alternative solution, according to Buterin.
UNI is in an “excellent position” to be a token for a decentralized oracle, according to Buterin, because of its high market capitalization.
In all, the move would also benefit Uniswap, according to Buterin.
“Uniswap heavily benefits from the existence of a more robust stablecoin ecosystem,” he said. “Uniswap v3 is heavily optimized toward ultra-high capital efficiency for stablecoin <-> stablecoin trades, and is likely to earn very high amounts of fee revenue from these trades.”
How to Protect Bull Market Gains with Koroush AK
In this episode, we talk about earning yields in crypto, protecting your bull market gains whilst earning profits through the use of stablecoins and how to build an edge in DeFi.
We can harness the power of compound interest to help build wealth
Let’s consider 2 people. One is a high earner, saving $2,000 a month into a traditional savings account and another is a crypto investor saving $1,000 a month into DeFi protocols paying 10%. After 10 years, the crypto investor will have earned $74,000 more. Even if you are a lower earner, focus on compound interest and you will build wealth.
There are high yields to be found in the DeFi space
This is because DeFi removes inefficient middlemen in the form of banks, requires knowledge as a barrier to entry, requires you to incur the risk of code bugs and finally, protocols are paying you to be a user.
Use aggregators to find the highest yields
Aggreagtors compare the DeFi market and as such help you find the best yields in the space. Harvest.Finance is a well known example of this and you can also use a platform such as Zapper.Fi
Use stablecoins to lower volatility in your portfolio
The split between crypto and stablecoins will determine the volatility of your portfolio and therefore your risk. Keeping a higher amount in crypto means your net worth is subject to high volatility with the potential to make or lose a lot.
There are two methods that can be used to take profits in a bull market
One is to set a target and reduce crypto exposure as you approach this amount. The second is simply to reduce your crypto exposure each month.
Taking note of market narratives can help build a major edge in the markets
In 2017 we had “the next Ethereum narrative”. This was powerful. ICX was the Korean Ethereum, NEO was the Chinese Ethereum. Both of these coins and several others like it went up over 100 times their value. Right now hot narratives include, NFTs, cheaper and faster Ethereums like Solana, exchange tokens (like FTT and BNB) and of course DeFi.
Some of the links we’ve included are affiliate, they give you rewards and discounts and earn us a commission. Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.