Understanding Fibonacci Retracement

Fibonacci retracement identifies potential support and resistance levels using ratios—23.6%, 38.2%, 50%, 61.8%, and 78.6%—to signal possible price bounces during market corrections.

The Fibonacci sequence and increasing positions

We can use the Fibonacci sequence for structured positioning, which helps us to manage risk and capital more effectively. Instead of adding the same amount of lots (or other units) at each retracement level, the Fibonacci sequence gradually increases the position size according to the Fibonacci series values (1, 1, 2, 3, 5, 8...).

Example: How to proceed when increasing the volume of a long/Buy position with $BTC :

  1. Market has a clear uptrend

  2. First entry: open a position when price retrace to 23.6% level with a size of 1 $BTC

  3. Decline to 38.2%: if the price falls further, add 1 BTC

  4. Drop to the 50% level: add 2 BTC

  5. Drop to 61.8%: add 3 BTC

  6. Drop to 78.6%: add 5 BTC

By doing this, we increase our positions when the price drops, thus reducing the average purchase price. If the market turns in our favour, the average price will be lower than our original entry price.

In our example, we show position sizes in whole 1 BTC, but traders with smaller accounts should adjust the size of their first position and subsequent positions so that their overall risk matches their account size and basic risk management rules.

Closing a Position in Profit

Effective profit-taking strategies include:

  1. Fixed Risk-Reward Ratio (RRR): Set a predetermined RRR (e.g., 2:1) to decide when to take profits.

  2. Fibonacci Expansion Levels: Use targets like 100%, 127.2%, or 161.8% to guide profit-taking.

  3. Technical Indicators: Watch RSI, MACD, and moving averages for confirmation signals to exit.

  4. Psychological Levels: Close trades at key psychological price points or previous highs/lows.

Gradual Closing

Consider partial profit-taking at specific Fibonacci levels while adjusting stop-loss orders to protect gains.

Risk Management

Always set stop losses and adhere to risk management principles. If prices breach key Fibonacci levels, consider closing the trade to minimize losses.

Conclusion

Using Fibonacci for scaling positions provides a structured method for managing trades. Combining this with expansions and technical indicators enables effective profit-taking. Proper risk management and trading discipline are vital for success in the long run.




Currently, $BTC is experiencing a retrace after a price increase. Might consider applying the above strategy for experimentation. And most importantly, always remember to manage your capital wisely and strictly, in line with your own account.
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