What is the Fibonacci Retracement tool?

The Fibonacci Retracement (or Fib Retracement) tool is a popular indicator based on a string of numbers called the Fibonacci sequence. These numbers were identified in the 13th century, by an Italian mathematician called Leonardo Fibonacci.

The Fibonacci numbers are now part of many technical analysis indicators, and the Fib Retracement is among the most popular ones. It uses ratios derived from the Fibonacci numbers as percentages. These percentages are then plotted over a chart, and traders can use them to identify potential support and resistance levels.

These Fibonacci ratios are:

• 0%

• 23.6% • 38.2% • 61.8%

• 78.6%

• 100%

While 50% is technically not a Fibonacci ratio, many traders also consider it when using the tool. In addition, Fibonacci ratios outside of the 0–100% range may also be used. Some of the most common ones are 161.8%, 261.8%, and 423.6%.

So, how can traders use the Fibonacci Retracement levels? The main idea behind plotting percentage ratios on a chart is to find areas of interest. Typically, traders will pick two significant price points on a chart, and pin the 0 and 100 values of the Fib Retracement tool to those points. The range outlined between these points may highlight potential entry and exit points, and help determine stop-loss placement.

The Fibonacci Retracement tool is a versatile indicator that can be used in a wide range of trading strategies.

What is the Stochastic RSI (StochRSI)?

The Stochastic RSI, or StochRSI, is a derivative of the RSI. Similarly to the RSI, it’s main goal is to determine whether an asset is overbought or oversold. In contrast to the RSI, however, the StochRSI isn’t generated from price data, but RSI values. On most charting tools, the values of the StochRSI will range between 0 and 1 (or 0 and 100).

The StochRSI tends to be the most useful when it’s near the upper or lower extremes of its range. However, due to its greater speed and higher sensitivity, it may produce a lot of false signals that can be challenging to interpret. The traditional interpretation of the StochRSI is somewhat similar to that of the RSI. When it’s over 0.8, the asset may be considered overbought. When it’s below 0.2, the asset may be considered oversold.

However, it’s worth mentioning that these shouldn’t be viewed as direct signals to enter or exit trades. While this information is certainly telling a story, there may be other sides to the story as well. This is why most technical analysis tools are best used in combination with other market analysis techniques.

What are Bollinger Bands (BB)?

Named after John Bollinger, the Bollinger Bands measure market volatility, and are often used to spot overbought and oversold conditions. This indicator is made up of three lines, or “bands” — an SMA (the middle band), and an upper and lower band. These bands are then placed on a chart, along with the price action. The idea is that as volatility increases or decreases, the distance between these bands will change, expanding and contracting.

Let’s go through the general interpretation of Bollinger Bands. The closer the price is to the upper band, the closer the asset may be to overbought conditions. Similarly, the closer it is to the lower band, the closer the asset may be to oversold conditions.

One thing to note is that the price will generally be contained within the range of the bands, but it may break above or below them at times. Does this mean that it’s an immediate signal to buy or sell? No. It just tells us that the market is moving away from the middle band SMA, reaching extreme conditions.

Traders may also use Bollinger Bands to try and predict a market squeeze, also known as the Bollinger Bands Squeeze. This refers to a period of low volatility when the bands come really close to each other and “squeeze” the price into a small range. As the “pressure” builds up in that small range, the market eventually pops out of it, leading to a period of increased volatility. Since the market can move up or down, the squeeze strategy is considered neutral (neither bearish or bullish). So it might be worth combining it with other trading tools, such as support and resistance.

What is a pump and dump (P&D)?

A pump and dump is a scheme that involves boosting the price of an asset through false information. When the price has gone up a significant amount (“pumped”), the perpetrators sell (“dump”) their cheaply bought bags at a much higher price. Pump and dump schemes are rampant in the cryptocurrency markets, especially in bull markets. During these times, many inexperienced investors enter the market, and they are easier to take advantage of.