Optimal Entry Point and Fibonacci

Terminology
Fibonacci numbers are elements of a numerical sequence where the first two numbers are 0 and 1, and each subsequent number is the sum of the previous two.

OTE (Optimal Trade Entry) – the optimal entry zone that specifies the point of entry into a position.

Golden Ratio
The Fibonacci sequence and the Golden Ratio are closely connected. The ratio of consecutive Fibonacci numbers converges toward the Golden Ratio. Fibonacci numbers describe various phenomena in art, music, and nature. The number of spirals on most pinecones and pineapples equals Fibonacci numbers. The arrangement of leaves and branches on many plants follows Fibonacci numbers. On a piano, the number of white keys (8) and black keys (5) in each octave (13) are Fibonacci numbers. The lengths and widths of many rectangular objects, such as windows and playing cards, correspond to consecutive Fibonacci numbers.

Fibonacci Grid in Trading*
The Fibonacci retracement grid is a well-known technical analysis tool. In classical use, the Fibonacci grid indicates possible support/resistance levels and correction completion levels. There are different methods for using the Fibonacci grid, and it is a broad topic, but we will focus on the most common methods:
1. Identifying the end of a corrective movement.
2. Determining Premium/Discount.
3. OTE (Optimal Trade Entry).

How to use it?
After the main trend movement, when a correction begins, we stretch the Fibonacci grid from the swing low to the swing high, or vice versa (depending on the direction). The focus is on the levels 0.38, 0.5, 0.618, and 0.786. However, you must understand that there is no guarantee the price will react only at these levels. The price may test any level or ignore it altogether.
Here is an example of how to use it: stretch the Fibonacci from swing low to swing high.

Premium/Discount
When forming a trading range (between Swing High & Swing Low), you can always see these three elements: the Premium zone, the Discount zone, and the Equilibrium zone.

1. Premium – When it comes to price, every rational person prefers to buy when there's a discount. Buyers seek a discount.
2. Discount – A seller with the product already in hand strives to sell at a premium price, higher than the average. Sellers look for those willing to buy at a higher price.
3. Equilibrium – The price range has a so-called fair price – the average price of the asset. This average price is called Equilibrium, or the balance zone.

Here’s an example of using the Fibonacci grid to identify potential buy and sell zones. Premium is located above the 0.5 level of the price range, and Discount is below 0.5. The 0.5 level acts as the average price of the asset or the zone of fair price – Equilibrium.

A composite trader, market maker, or manipulator is the main buyer or seller because they trade very large volumes, and their presence can be seen on the chart. All other market participants are merely trying to join the movements created by the market maker. Therefore, all buy or long trades should be made only in the discount zone, and all sell or short trades should be made in the premium zone.

Important to remember: If the price does not test the 0.5 level and continues in the original direction, you should always switch to higher time frames, as the local correction you expected above/below the 0.5 level might be part of a larger impulse movement on the higher time frame. This time frame is unsuitable for finding an entry point because the price will always attempt to fill in the market movement's void. Therefore, market analysis and the use of any tools operate on the principle of moving from general to specific, from the global picture to the detailed one.

Identifying the end of a corrective movement
The Fibonacci grid is a trending tool that helps determine the depth of a corrective move. It is considered that in a strong trending movement, the correction will correspond to levels 0.236–0.38. When the trend weakens, the correction depth may reach lower levels, such as 0.5, 0.618, 0.705, and 0.786. The grid is applied in both upward and downward trends.

OTE Zone
Within the Premium & Discount zones lies the OTE zone, which is the best area for opening positions. The OTE zone is the range between the 0.618–0.705–0.786 Fibonacci levels. The OTE zone helps narrow down the area for finding the entry point and focus attention on a specific range.

The levels in the OTE zone give the entry point and indicate the range to which the trading tool should be tied. You can stretch the Fibonacci grid over any local/global movement.

Why these levels? Traders using classic technical analysis typically focus on the 0.5 Fibonacci level (the fair correction level), and they place their stop orders beyond the 0.618–0.786 levels, where a large cluster of liquidity (stop orders and liquidations) resides. All liquidity acts as a "magnet" for the price. This is where the major player will accumulate their position.

It's important to understand that the Fibonacci grid works only in combination with other tools in the concept.