In the world of investing in the Crypto exchange, traders are always looking for supporting tools to make informed decisions. One of the popular tools used in technical analysis is the Fibonacci sequence. So what is Fibonacci retracement and what important role does it play in determining market trends? Let’s learn more about its advantages when trading with Crypto Trading!
Learn about Fibonacci retracement on Crypto Trading Platform
Fibonacci retracement is what many traders are interested in when trading on Crypto. Let’s learn the basic information about it with Crypto Trading!
What is Fibonacci retracement?
In technical analysis, Fibonacci retracements act as a measure of support and resistance. They are represented by horizontal lines drawn on a price chart, marking locations where prices are likely to pause the current trend and reverse.
What is the Fibonacci number sequence? These are retracement levels determined based on percentages, with the most common ones including 23.6%, 38.2%, 61.8%, and 78.6%. Although 50% is not an official Fibonacci number, it is still widely used as a potential support/resistance level.
Through the Fibonacci sequence, we can also apply some other important ratios on the Crypto exchange such as:
- 0.382 Ratio: Obtained by dividing any number in the Fibonacci sequence by the number one position to the right. For example, if you choose 34, divide it by 89 to get 0.382, or if you choose 55, divide it by 144.
- 0.236 Ratio: Unlike the 0.382 ratio, this ratio is calculated by dividing any number in the Fibonacci sequence by the number 2 places to the right of it. For example, if you choose the number 21, divide it by 89 to get the ratio 0.236.
What is the meaning of the Fibonacci sequence?
Fibonacci ratios play an important role in analyzing price movements. Traders should use this ratio to predict trends and price points on Crypto. From there, determine support, resistance, potential stop loss points, and price targets.
- Support level: This is the lowest price point over a while. At this level, the price is unlikely to fall below this level.
- Resistance level: This is the highest price point over a certain time. The stock price is unlikely to rise beyond this level.
Using Fibonacci ratios also helps predict reversal points in price trends on Crypto exchanges. Although Fibonacci lines provide traders with potential support and resistance areas. Instead, prices tend to fluctuate around Fibonacci levels. Sometimes breaking out and sometimes finding reversal points at these levels.
Therefore, investors may have difficulty in determining resistance levels and stop-loss entry points when using only the Fibonacci method. This is one of the limitations that traders need to pay attention to on the Crypto exchange. To increase the accuracy of predictions, traders should combine Fibonacci ratios with indicators.
See more: Fibonacci: magic trading tool for every trader
Application of Fibonacci Trading on Crypto Trading Platform
The Fibonacci extension series plays an important role in technical analysis, helping investors predict price movements and build effective investment strategies. Not only Fibonacci retracement but each type of Fibonacci is applied for a specific purpose:
- Fibonacci retracement: Used to identify reversal zones of stock prices during technical corrections and rallies. At the 38.2%, 50%, and 61.8% Fibonacci levels, prices tend to reverse the most.
- Fibonacci Time Zones: Used to identify resistance and support levels, as well as help identify price reversal points within the current trend.
- Fibonacci Fans and Fibonacci Arc: Used to identify reversal points and potential resistance and support zones. From there, investors know when to sell or buy to achieve the best profits.
- Fibonacci Extension: Helps investors determine the stopping point of the current trend, thereby deciding the optimal profit-taking point.
Classification of popular Fibonacci Trading models today
The Fibonacci toolkit plays an important role in the technical analysis of the Crypto exchange. It helps investors identify potential price levels, support, and resistance. The three most widely used Fibonacci indicators when making transactions include:
Pattern Fibonacci retracement (Fibonacci Retracement)
Fibonacci retracement stands out as an extremely useful technical analysis tool. Thanks to it, investors can determine potential target prices and reasonable stop-loss levels, thereby building their effective trading strategies.
Elliott wave theory and the Gartley pattern – are two famous technical analysis tools. It has excellently applied Fibonacci to support traders in predicting market trends. Thanks to Fibonacci, investors can identify potential support and resistance levels with high accuracy.
To do this, investors first need to identify and draw Fibonacci lines. First, identify the peaks and troughs in recent uptrends and downtrends. Then, connect the most recent peak to the most recent trough for downtrends, and connect the most recent trough to the most recent peak for uptrends.
Fibonacci Fans Pattern on Crypto Trading Platform (Fibonacci Fans)
Fibonacci Fan, also known as Fibonacci Fan, is a technical analysis tool. Used to predict potential support, resistance, and reversal levels on Crypto exchanges. It consists of three diagonal trend lines drawn from a high (peak) or low (bottom) down to Fibonacci retracement levels.
- In an uptrend, Fibonacci Fan lines are drawn from the bottom to the retracement levels based on the increase. Traders use these lines to estimate support levels and potential reversal points.
- In a downtrend, Fibonacci Fan lines are drawn from peaks to retracement levels based on the decline. These lines are used to predict resistance levels and reversal zones on Crypto.
Fibonacci Arc Trading Model
Fibonacci arcs consist of arcs centered on the highest or lowest point in an uptrend or downtrend. These arcs extend and intersect the baseline at Fibonacci levels. The area created from these arcs will predict potential support or resistance levels for each uptrend or downtrend of the market.
How to Calculate Fibonacci Retracement Levels on Crypto Trading
Fibonacci does not have a specific calculation formula. Instead, it is determined based on the percentage of a selected price range. Let’s learn how to determine the calculation level of Fibonacci retracement!
Identify Support/Resistance Levels When Crypto Trading Platforms Peak
Based on the predetermined tops and bottoms, the Fibonacci sequence will be applied to find potential support points for the stock price. When the stock peaks and shows signs of slowing down, Fibonacci levels such as 23.6%; 38.2%; 61.8%… have the potential to become support zones where the stock price can stop its decline and bounce back.
When a stock price drops and hits Fibonacci support levels on Crypto exchanges, it can be a sign that the downtrend may be coming to an end and the price may reverse upwards. This is because investors often look at these Fibonacci levels as potential reference points for reversals.
If the price continues to decline after hitting a Fibonacci support level, the next Fibonacci level could act as new support. This happens because some traders believe that the price will rebound at the next Fibonacci level. This has led to increased buying pressure at that price point on Crypto.
See more: Open an Bybit account – explore the crypto exchange
Identify support/resistance levels when Fibonacci retracement falls low
When the Crypto market forms an uptrend and determines the price tops and bottoms. Traders can apply the Fibonacci sequence to predict potential reversal points. From there, make appropriate trading decisions in the Crypto Trading market.
In the context of the price being in an uptrend and having determined the bottom of the Crypto exchange. Important Fibonacci levels will act as potential resistance points when trading. In particular, it shows signs of recovering from the bottom and moving towards these Fibonacci levels, there is a high possibility that the price will encounter profit-taking selling pressure, causing the price to reverse and turn down.
When the price increases and reaches the Fibonacci level, the possibility of a trend reversal from up to down is very high. This comes from the trader’s psychology, they tend to sell to take profit when the price reaches the price zones according to the Fibonacci ratio.
summary
In general, Fibonacci is a useful support tool for investors in technical analysis. However, to use it effectively, it is necessary to combine it with other methods and gain experience. Crypto Trading hopes that traders should trust Fibonacci retracement because of its ability to identify potential buying and selling points, supporting them in making effective trading decisions, don’t forget to follow our upcoming columns!
FAQs
What are the major Fibonacci levels?
The major Fibonacci levels are 23.6%, 38.2%, 50%, 61.8%, and 100%.
How to draw Fibonacci levels on the chart?
To draw Fibonacci levels on a chart:
- Identify the most recent tops and bottoms of a price trend
- In an uptrend, connect bottom to top; in a downtrend, connect top to bottom.
- Retracement levels will automatically appear on the chart.
How to use Fibonacci to determine trade entry/exit points?
To use Fibonacci to determine trade entry/exit points:
- Trend Identification: Identify uptrend or downtrend and draw Fibonacci levels
- Entry Points: Look for retracement levels (23.6%, 38.2%, 50%, 61.8%) to determine entry points when the price corrects and is likely to reverse.
- Exit Points: Identify retracement levels as resistance or support levels to place take profit or stop loss orders
