In an uptrend, you only want to buy during or immediately after a pullback or retracements.
Key points
- For all my trading, I coined the term BOSAR which means Buy Or Sell After Retracements.
2. I use the fibonacci retracement tool to mark out the price levels to watch, split my orders into 2 or 3 portions and place pending orders accordingly and wait for price to come down to the levels.
3. The fibonacci levels I watch for a bounce or end of pullbacks or are the mainly 61.8% and 78.6 retracements zones. I place my limit buy orders just above these levels.
I draw my fib levels on a minimum of H4 time frame, ideally on daily time frame.
Looking at the chart above, we see price of Polkadot (DOT/USDT) rallying from $4.52 which acted as support/ accumulation zone for a prolonged period.
Price then first rallied up to $10, then pulled back to around $7.70 and the finally broke out of $10 zone and made a new all time high of $19.35cents.
Now IF $19.35 level becomes the high for now, I would expect many traders who bought at lower prices to start taking profits. This sell off usually leads to a pull back. so the question now becomes : at what prices should I look to buy back in as we know that Polkadot (DOT/USDT) will continue to make new highs in the future.
This is where using the fibonacci retracement as explained above comes in real handy to give you an idea of what levels to watch and start to buy back in .
PRO TIP: In this case, you draw fibonacci retracement from the bottom price of $4.52 to top price of $19.35 and then mark out the 61.8 and 78.6 Fib levels.
I like placing fractions of my orders as follows; scaling in gradually as price falls.
At 61.8% fib retracement zone , I place half of my order volume and
At 78.6%fib retracement zone, I place the remaining half of my planned order volume.
Scaling in is great because, no one knows for sure at what level the price is going to drop to before lift off again.
With this technique also you reduce your overall average buy back in price. This is also known as dollar cost averaging (DCA).
I find 61.8% and 78.6% levels to be more significant in many cases. for example, on the chart above, you can see that 61.8% fib will correspond to $10; this is the level at which price broke out to make new highs. Price always tends to comes back to retest those breakout levels. which is why a majority (50%) of my total order will be placed at this level.
Also you can see that the 78.6% fib level will line up with $7.7 zone, which was where price retraced to before the breakout of the $10 zone.
Of course technically speaking, your stop loss, should be below $4.52 level, if you wish to use one.
Hope this video with Reserve Rights Token explains this a bit more:
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