Have you ever wondered ” What is Fibonacci number sequence ” and how can it be applied in Crypto trading? Let’s learn more about the Fibonacci number sequence with Crypto Trading to apply it effectively in the cryptocurrency market!
Learn about the Fibonacci number sequence
Before we explore the Fibonacci number sequence in detail, let’s take a brief look at its origin and significance. This number sequence is not only a mathematical concept but also has wide applications in many fields, from digital to art and finance.
What is the concept of the Fibonacci sequence?
The Fibonacci number sequence is a series of numbers in which each number is the sum of the two previous numbers. The special thing is that the ratio between the numbers in this sequence is close to a constant, called the “golden ratio” or “golden number”. The development of this number sequence is very common in nature, from the structure of flowers, and seashells, to the division of trees.
History of the formation of the Fibonacci number sequence
The Fibonacci sequence is named after the Italian mathematician Leonardo Fibonacci, who described it in the 13th century in his book “Liber Abaci”. He discovered the sequence while studying the growth of rabbits. Very soon, the sequence was applied in mathematics. To this day, the sequence is not only limited to mathematics but has also spread to many other fields such as Crypto.
See more: Fibonacci: magic trading tool for every trader
Application of Fibonacci number sequence in trading and investment
In the world of trading and investing, the Fibonacci number sequence is not only a mathematical concept but also an important tool in technical analysis and identifying potential trading opportunities. Here are the 2 most popular ways to apply Fibonacci in investment trading.
Fibonacci trading strategy
The Fibonacci trading strategy is one of the most popular methods used by traders and investors. Traders use retracement and extension levels of the Fibonacci number sequence to identify potential retracement points where the price may pause and reverse before continuing the current trend. These levels are typically calculated by taking certain percentages of the Fibonacci number sequence, such as 23.6%, 38.2%, 61.8%, and 78.6%, and applying them to a price chart.
For example, if a stock rises from $100 to $200 and then starts to decline, a trader can apply Fibonacci levels to determine where the price might find support, such as at $161.8 (61.8% retracement).
Fibonacci in coin trading
Fibonacci trading coin is also widely used to analyze price charts and predict potential support and resistance levels. Traders can use Fibonacci retracement levels to determine the best entry or exit points. This helps to maximize profits and significantly minimize risks.
For example, when a coin has a strong price increase and then starts to show signs of decline, a trader can draw Fibonacci retracement levels from the lowest point to the highest point of the increase to find support levels where the price can bounce.
Distinguishing Fibonacci Extensions and Retracements
In technical analysis, Fibonacci extensions and Fibonacci retracements are two important tools that help traders identify potential price levels. Understanding the differences and how to use each of these tools will help optimize your trading strategy.
Fibonacci Extension
Fibonacci Extension is a tool used to determine the next price level after the price has passed an important level. This tool helps predict the next price targets based on Fibonacci extension levels, which usually include the 123.6%, 138.2%, 150%, 161.8%, 200%, and 261.8% levels.
Application in trading
- Determine profit targets: When a price trend continues after breaking a key resistance or support level. Fibonacci extensions help predict the price levels the trend may reach.
- Placing Take Profit Orders: Traders use Fibonacci extension levels to place take profit orders at these predicted price levels.
Practical examples
In an uptrend, if the price breaks above the 100% resistance level, traders can use the 161.8% Fibonacci level to predict the next price target.
Fibonacci retracement
Certainly! Fibonacci Retracement is a tool that helps identify temporary support and resistance levels during price corrections against the main trend. Common Fibonacci retracement levels include 23.6%, 38.2%, 50%, 61.8%, and 100%.
Application in trading
- Identifying Entry Points: When prices correct within a trend. Traders can use Fibonacci retracement levels to find good entry points based on temporary support or resistance levels.
- Placing Stop Losses: Fibonacci retracement levels also help determine appropriate stop loss placement points to manage risk.
Practical examples
In a downtrend, if the price corrects to the 38.2% level, traders can expect that the price will resume the downtrend from this level.
The Difference Between Fibonacci Extension and Retracement
- Fibonacci Extensions: Used to determine the next price level when a trend continues after breaking an important level.
- Fibonacci retracement: Used to identify temporary support and resistance levels during price corrections against the main trend.
See more: Opening an Bybit exchange account for traders
How to determine support and resistance levels with the Fibonacci number sequence
Fibonacci number sequence is a powerful tool in technical analysis. It helps traders identify important support and resistance levels on price charts.
Here are the specific steps to determine support and resistance levels using Fibonacci retracements.
Step 1: Determine the direction of the market
First, it is necessary to determine the main trend of the market. This main trend can be an uptrend or a downtrend.
- Uptrend: Price is moving higher.
- Downtrend: Price is moving lower.
Step 2: Identify the top and bottom
Once you have identified the main trend, choose the nearest high and low of that trend.
- In an uptrend: Choose the lowest point (bottom) and the highest point (top) of the trend.
- In a downtrend: Choose the highest point (peak) and the lowest point (bottom) of the trend.
Step 3: Apply the Fibonacci retracement tool
Use the Fibonacci retracement tool on your trading platform (like MetaTrader, TradingView, etc.).
- In an uptrend: Drag the tool from the lowest point to the highest point.
- In a downtrend: Drag the tool from the highest point to the lowest point.
Step 4: Identify Fibonacci retracement levels
After applying the Fibonacci retracement tool, retracement levels will appear on the chart. Common levels include 23.6%, 38.2%, 50%, 61.8%, and 100%. These are potential support and resistance levels.
- 23.6% Level: Weakest support/resistance level.
- Level 38.2%: Medium support/resistance level.
- 50% Level: Medium support/resistance level. Often used although not an official Fibonacci level.
- Level 61.8%: Strong support/resistance level.
- 100% Level: The starting point of the trend.
Step 5: Combine Fibonacci with other tools and indicators
To increase the accuracy of Fibonacci support and resistance levels, traders should combine them with other technical analysis tools. Such as moving averages (MA), RSI, Japanese candlestick patterns, and other indicators. This combination helps confirm support and resistance levels. At the same time, it creates stronger trading signals.
Practical examples
Suppose the price of a currency pair is in an uptrend from $100 to $200.
- Identify the trend: In this case, it is an uptrend.
- Pick high and low points: Low is $100 and high is $200.
- Apply the Fibonacci retracement tool: Drag the tool from $100 to $200.
- Identify the retracement levels: The retracement levels will be $176.4 (23.6%), $161.8 (38.2%), $150 (50%), and $138.2 (61.8%).
Conclude
So the above article is all the information about the Fibonacci number sequence. Including definition, application in trading, and how to determine support and resistance zones. When you understand this number sequence deeply enough, it helps you optimize your trading strategy. Thereby creating favorable opportunities in the Crypto market. To update the fastest information related to Fibonacci, follow Crypto Trading now.
FAQs
Why do Fibonacci number sequences appear in many natural phenomena?
Fibonacci ratios appear in many natural phenomena as they represent natural growth rates and balanced division.
Can Fibonacci retracements be used for all trading timeframes?
The answer is YES. Fibonacci retracements can be used on any trading timeframe. From minute charts to daily charts. Helps identify potential support and resistance levels during different market phases.
Does every trader use Fibonacci retracements the same way?
The answer is NO. Each trader can use Fibonacci retracements in their own way. Based on their trading style, time frame, and how they identify tops and bottoms. This will result in different retracement levels on the chart.
