Why should being a crocodile in the river be better than being a lion chasing herds?

In the trading world, you always hear about the "sharks" that chase deals in every direction, pouncing on every price movement as if they are chasing a herd in the wild. They may succeed sometimes, but they often exhaust their energy and suffer repeated disappointments.

But the smarter trader is the one who turns into a "crocodile in the river."

Imagine the scene with me:

· The river: the general trend of the market.

· The alligator: the patient trader, waits at a specific point, with little movement, conserving energy.

· The herd: A crowd of traders moving in a herd, entering at buying peaks and selling at panic peaks.

· The herd drinks from the river: This is the inevitable point where the price will return to drink – that is, to stop and correct after a strong upward or downward movement.

Here lies the secret: the herd will always return to drink from the river. After the price explodes (makes a strong movement), it will inevitably return to fill the (Order Block) area or the (Fair Value Gap) or correct part of that movement before continuing its way. This is the "drinking area" that the alligator waits for.

And the strongest tool to identify the alligator's trap point is: Fibonacci levels.

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Fibonacci: A roadmap for the herd to return to the river

The Fibonacci sequence is a famous mathematical series that astonishingly appears in nature (like shells and sunflower flowers), and most importantly, in the behaviors of financial markets, as it reflects the psychologies of greed and fear among traders.

In trading, we use Fibonacci retracement levels to predict retracement or correction points after a clear price movement.

How to correctly draw Fibonacci levels

1. Clearly define the trend: You first need to identify a major bullish wave (Swing Low to Swing High) or a major bearish wave (Swing High to Swing Low).

2. Draw the tool from start to finish:

· In an uptrend: Draw from the lowest point (Swing Low) to the highest point (Swing High).

· In a downtrend: Draw from the highest point (Swing High) to the lowest point (Swing Low).

Practical example: If the stock is rising from $100 to $150, then starts correcting, you will draw the Fibonacci tool from the bottom of $100 to the top of $150.

The golden levels to watch

When drawing, several levels will appear, but the most important are:

· Level 61.8% (the golden ratio): This is the alligator's favorite level. It is considered the strongest correction level ever. Corrections often stop at it and the price returns to continue the original trend. Here the alligator sets its trap.

· Level 50.0%: A very strong psychological level that the market respects greatly. It is considered a major support/resistance area.

· Level 38.2%: Considered a weak correction, and if the price bounces from it, this indicates strong power in the original direction.

· Level 78.6%: A deep level; if the price breaks it, this often indicates that the correction may turn into a full reversal.

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Entry Strategy: The alligator's trap at Fibonacci

It's not enough to draw the levels; you must wait for confirmation. Don't jump like a hungry lion!

1. Identify the Fibonacci area: After a strong movement, identify the potential correction area (especially the 50% - 61.8% area).

2. Wait for the entry signal (confirmation): This is the real "alligator" step. Wait for the price to reach the desired Fibonacci level and start giving buy or sell signals, such as:

· Reversal candlestick patterns: (like hammer, bullish engulfing, star patterns) at Fibonacci levels.

· Divergence on MACD or RSI: Indicates weakness in the correction momentum.

· Price interaction with support or resistance level: Finding clear support at a Fibonacci level in an uptrend.

3. Enter the trade: Enter after one of these signals appears.

4. Set the stop loss: Place the Stop Loss below the deepest Fibonacci level (like 78.6%) for buy trades, and above it for sell trades.

Example: A stock rose from $100 to $150, then started to fall. I drew Fibonacci from 100 to 150. The price reached the 61.8% level (around $119) and formed a "hammer" candle with increased volume. This is the entry signal. Set the stop loss below the 78.6% level.

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Why is Fibonacci so important in trading?

1. Define areas, not points: Fibonacci gives you an "area" to enter, increasing your chances of success instead of trying to hit an exact top or bottom.

2. Anticipate market behavior: It relies on recurring collective behavior, as traders around the world watch the same levels, making them self-fulfilling.

3. Dynamic support and resistance: Provides strong support and resistance levels during correction periods, and is more dynamic than fixed horizontal lines.

4. Combine it with other tools: Works great when combined with candlestick patterns, classic support and resistance levels, and momentum indicators like RSI or MACD.

Summary: From lion to alligator

Stop chasing the price like a tired lion. Be an alligator.

· The lion hunts in the savannah (enters random trades).

· The alligator waits in the river (at key Fibonacci levels).

Learn to draw Fibonacci correctly, and wait patiently at the golden levels (especially 61.8%), and only enter when confirmation occurs. This way, you won't exhaust your energy on losing trades, but will wait for the best opportunities to pounce on, just like an alligator pounces on its prey that has returned to drink from its river.

Remember: the herd will always return to drink from the river. Be there waiting for it.