Using Fibonacci Retracement to Find Good Entries -eBoost Example
Hi friends,
The purpose of this post is not to provide entry and targets, but to help traders who are just starting out familiarize themselves with fibonacci retracement and how it can be utilized for deciding an entry to the market.
So if you are an experienced trader, please ignore this post.
Okay, let's dive right into it.
We are looking at a 30 minutes chart of eBoost.
- Train of thoughts:
1. Take a look at the box that encloses a zig zag corrective wave pattern (Look at it, and count 3 waves in the zig zag pattern; the 3 legs of this zig zag pattern are composed of 3-3-5 subwave. Count that too.)
2. Now that we've established the corrective wave pattern, we know a set of elliot waves must precede the corrective waves. They are marked with blue texts 1,2,3,4,5.
**Count it, make sure you see the five waves.
3. Now, look at fibonacci retracement levels. (How to: you can access the fibonacci retracement tool on trading view)
**The question we are asking is: how much do wave 2 & 4 retrace?
**For wave 2&4, the fibonacci retracement tool are in black. Take a look at the blue & black dotted line to see how the levels are set accordingly to the start and end of wave 1&3.
**Look at the arrow, it shows both waves 2& 4 retraced to .382 level.
5. Now, let's ask: How much will the ENTIRE FIVE WAVES RETRACE?
**Take a look at the colored fibonacci retracement tool. The orange dotted line is a guide for you to see how the fibonacci retracement tool starts at the beginning of wave 1 and the ends at the end of wave 5.
**Again, this coin retraced to .382 level.
- Take a step back now:
--> We now have a set of five waves marked in blue: 1,2,3,4,5. They together, make a giant wave 1' of another elliot wave .
*We can say: "The 5 waves marked in blue are the subwaves for wave 1' ." (1' is marked in purple. You may also notice that it is at the exact same spot as 5 marked in blue)
--> Now after the correction of 1' to .382 level (colored fibonacci retracement tool), we have the end of wave 2'.
What does this mean?
This means we are in wave 3' !!!
It is important to note that wave 3' will ALSO be composed of another 5 sub-waves.
After that, there will be another retracement (ie, wave 4' )
As a general rule: wave 2 & 4 retracements depend on one another. In essence, if one correction is steep, the other one would be less steep.
If wave 2 retraced a little bit (in this case .318), we can expect a bigger correction, perhaps to .618 in wave 4' . And those dips are where you should place your BUY PENDING ORDERS.
**Note: this rule does not ALWAYS work, and this is also why I chose this example. If we look at the retracement of wave 2 & 4 marked in blue (black fibonacci retracement tool), we see both retrace to .318.
We might have expected a correction to .618 on wave 4 after seeing how wave 2 only retraced to .318
However, the rule does not apply in this particular leg as wave 4 also only retraced to .318 instead of an expected .618
The purpose of this post is not to provide entry and targets, but to help traders who are just starting out familiarize themselves with fibonacci retracement and how it can be utilized for deciding an entry to the market.
So if you are an experienced trader, please ignore this post.
Okay, let's dive right into it.
We are looking at a 30 minutes chart of eBoost.
- Train of thoughts:
1. Take a look at the box that encloses a zig zag corrective wave pattern (Look at it, and count 3 waves in the zig zag pattern; the 3 legs of this zig zag pattern are composed of 3-3-5 subwave. Count that too.)
2. Now that we've established the corrective wave pattern, we know a set of elliot waves must precede the corrective waves. They are marked with blue texts 1,2,3,4,5.
**Count it, make sure you see the five waves.
3. Now, look at fibonacci retracement levels. (How to: you can access the fibonacci retracement tool on trading view)
**The question we are asking is: how much do wave 2 & 4 retrace?
**For wave 2&4, the fibonacci retracement tool are in black. Take a look at the blue & black dotted line to see how the levels are set accordingly to the start and end of wave 1&3.
**Look at the arrow, it shows both waves 2& 4 retraced to .382 level.
5. Now, let's ask: How much will the ENTIRE FIVE WAVES RETRACE?
**Take a look at the colored fibonacci retracement tool. The orange dotted line is a guide for you to see how the fibonacci retracement tool starts at the beginning of wave 1 and the ends at the end of wave 5.
**Again, this coin retraced to .382 level.
- Take a step back now:
--> We now have a set of five waves marked in blue: 1,2,3,4,5. They together, make a giant wave 1' of another elliot wave .
*We can say: "The 5 waves marked in blue are the subwaves for wave 1' ." (1' is marked in purple. You may also notice that it is at the exact same spot as 5 marked in blue)
--> Now after the correction of 1' to .382 level (colored fibonacci retracement tool), we have the end of wave 2'.
What does this mean?
This means we are in wave 3' !!!
It is important to note that wave 3' will ALSO be composed of another 5 sub-waves.
After that, there will be another retracement (ie, wave 4' )
As a general rule: wave 2 & 4 retracements depend on one another. In essence, if one correction is steep, the other one would be less steep.
If wave 2 retraced a little bit (in this case .318), we can expect a bigger correction, perhaps to .618 in wave 4' . And those dips are where you should place your BUY PENDING ORDERS.
**Note: this rule does not ALWAYS work, and this is also why I chose this example. If we look at the retracement of wave 2 & 4 marked in blue (black fibonacci retracement tool), we see both retrace to .318.
We might have expected a correction to .618 on wave 4 after seeing how wave 2 only retraced to .318
However, the rule does not apply in this particular leg as wave 4 also only retraced to .318 instead of an expected .618
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