In the Crypto investment market, technical analysis indicators are widely used to confirm market price trends. In this article, let’s learn about Elliott waves and Fibonacci analysis methods with Crypto Trading. This method will help you improve the efficiency of your investment and trading. So, don’t miss it, be sure to check it out now!
The general concept of Elliott waves and Fibonacci
To understand if this combination works, you need to understand some concepts like What are Elliott waves and what is Fibonacci.
What is the Elliott wave?
Elliott wave is one of the advanced theories widely used in trading and investing. This wave represents the behavior of groups of people through changes in emotions from optimism to the opposite.
Elliott observed that asset prices tend to move in a certain wave pattern. This wave pattern is made up of 5 bullish waves and 3 corrective waves. These waves are arranged in a specific order, which is called the Elliott wave pattern.
What is the Fibonacci indicator?
The Fibonacci indicator is a technical analysis tool used to identify potential support and resistance levels. The indicator is based on the Fibonacci sequence, a series of numbers created by adding the two previous numbers to create the next number.
See more: Elliott wave: learn principles, trade effectively
Elliott wave relationship combined with Fibonacci
When combining Fibonacci and Elliott waves, a close relationship is created. Specifically:
The first wave when combining Fibonacci and Elliott waves
This is the beginning of a series of primary waves that start with a bear market. Therefore, initially, few people recognize this wave. However, when this wave is detected, do not rush to place orders but wait for it to complete. In order to determine the size of the second primary wave.
Main wave 2 when combining Elliott wave and Fibonacci indicator
This primary wave 2 will be a perfect correction to the first wave. However, its retracement will not be able to surpass the starting point. And the volume of wave 2 will also be smaller than the Elliott Wave 1. At this point, the price will correct to the 0.382-0.618 range of wave 1. Wave 2 usually retraces mainly at the following levels around 50%, 61.8%, and 76.4% with the minimum retracement around 23.6%.
Wave 3 when Elliott waves and Fibonacci
Elliott wave 3 is the most important impulse wave in the Elliott waves and Fibonacci model. It is usually stronger and longer than other bullish waves (wave 1 and wave 5). It acts as a confirmation of the uptrend and provides potential trading opportunities for investors.
This type of wave is often used for the purpose of:
- Identify Uptrend: Use other technical indicators to confirm the uptrend before looking for Elliott wave 3.
- Locate wave 3: Follow the Elliott wave structure to determine the potential location of wave 3.
- Wave 3 Structure Analysis: Identify the wave 3 form (standard, extended or contracted) to predict future price behavior.
- Open a buy order: When the price breaks out of the top of wave 2 and confirms wave 3. Open a buy order with a stop loss placed below the bottom of wave 2.
- Take Profit: Can take profit based on Fibonacci ratios (1.618, 2.618) or based on other technical signals.
Main wave 4 after combination
Wave 4 is a corrective wave in the Elliott wave pattern that appears after a strong impulse wave 3. At the same time, it precedes the next impulse wave 5. Wave 4 is usually shorter and weaker than wave 2 and tends to move in the opposite direction of wave 3. The Impulse Wave 4 is a lagging technical analysis tool. Therefore, its signals may be delayed and are not always accurate. It is necessary to combine impulse wave 4 with other technical analyses to make trading decisions.
Fifth wave when Elliott wave combined with Fibonacci
This is the final impulse wave in the Elliott Wave pattern. It usually appears after the corrective wave 4 and completes an Elliott Wave cycle. Wave 5 is usually shorter and weaker than wave 3. However, it still tends to move in the direction of wave 3. Identify a buy entry point when the price breaks out of the top of wave 2. At the same time, aiming for the 61.8% Fibonacci level of wave 1 is a potential entry point for a buy order. When the price reaches the 1.618% or 2.618% Fibonacci level of wave 3. This can be a potential profit-taking point for a buy order.
Combining Elliott waves and Fibonacci in coin trading
Here is how to use Elliott waves and Fibonacci to trade coins. Details are as follows:
Step 1: Identify the trend
Use other technical indicators such as SMA, MACD, and RSI… to confirm the market’s uptrend or downtrend before applying Elliott waves and Fibonacci.
Step 2: Identify the Elliott wave structure
Look at a price chart to identify Elliott waves, which include waves 1, 2, 3, 4, and 5. Note the characteristics of each wave such as length, slope, location, and relationship to other waves.
Step 3: Use Fibonacci to identify support and resistance levels
Draw Fibonacci retracement and Fibonacci extension lines on the price chart. Common Fibonacci levels include: 23.6%, 38.2%, 50%, 61.8%, 78.6% and 1.618%. These levels can act as potential support and resistance points.
Step 4: Combine Elliott waves and Fibonacci
Use the position of the Elliott waves to identify potential support and resistance zones based on Fibonacci. Look for potential trade entry/exit points at the Elliott wave and Fibonacci crossover zones.
Step 5: Risk management during trading
Always set a reasonable stop loss for each trade to limit damage. Use other risk management tools such as stop loss orders, and profit limit orders…
See more: Open an Bybit account – explore the crypto exchange
Notes when combining Elliott waves and Fibonacci
Using a combination of advanced Elliott wave and Fibonacci can be a powerful tool for predicting potential price trends. But there are also some things to keep in mind:
- Both Elliott waves and Fibonacci are lagging tools. Therefore their signals can be lagging and not always accurate.
- Combine with other types of technical analysis to confirm signals. Use other technical indicators such as SMA, MACD, RSI… to confirm trends and support and resistance.
- Don’t be too rigid in applying the rules. The market is always changing and doesn’t always follow the rules exactly. Be flexible in adjusting the way you use Elliott waves and Fibonacci based on the actual market situation.
- Always set a reasonable stop loss on each trade to limit losses. Never trade with more money than you can afford to lose.
- Use Elliott Wave and Fibonacci indicators on demo accounts to practice before trading with real money. Take courses or seminars to improve your trading knowledge and skills.
- Gain real trading experience to be able to make quick and accurate trading decisions.
Conclude:
Elliott waves and Fibonacci are technical analysis tools and indicators with quite high accuracy. In the above article, Crypto Trading has given you some information about Elliott waves combined with Fibonacci. Hopefully, through this article, investors will have more knowledge about a trading method and from there choose the right investment method for themselves. Wish you always success and don’t forget to follow us to update more investment information!
FAQs:
Why combine the Elliott wave and Fibonacci indicator?
Combining these two tools can bring many benefits to traders. Including: Identifying trends, Identifying entry/exit points, filtering signals…
Elliott wave combined with Fibonacci needs to combine which technical indicator?
Use other technical indicators such as SMA, MACD, and RSI when applying Elliott wave combined with Fibonacci.
What behavior does Elliott wave exhibit?
This type of wave represents the behavior of groups of people through changes in emotions from optimism to pessimism and vice versa.
