Fibonacci Retracement Bitcoin & Crypto Trading Strategy: The Magic Numbers

There are certain downsides to using Fibonacci retracements as a technical indicator. Firstly, the indicator is not objective and can only be applicable to a limited range of assets. In order to have the Fibonacci retracement working in the market’s favor and accurately reflect the asset’s price momentum, the same Fibonacci ratios must be used by a large number of traders. Financial market technical analysis employs tools such as chart patterns, indicators, and trendlines to determine the best buying and selling… Before using the Fibonacci tool to identify potential support or resistance levels, a trader must first be able to identify a “swing high” and “swing low.” It’s worth noting that the 0.618 ratio is particularly important for trading with Fibonacci retracements.

Among them are Fibonacci retracements and extensions, which are tools based on a string of numbers called the Fibonacci sequence. Having understood what Fibonacci numbers and sequence are, we will now look at the application in technical analysis. The numbers are used with Fibonacci Retracement to determine support and resistance levels.

Fibonacci retracement levels work well to locate a zone where a potential reversal might occur, while Fibonacci extensions present a possible price target. Fibonacci trading should be used in conjunction with other technical analysis indicators such as the RSI, MACD, or Stochastic, or to help validate certain geometric and harmonic chart patterns. Fibonacci levels are a fairly useful trading tool with various usages. They can be used to identify support and resistance levels and also potential targets past new highs or lows. As is the case with other indicators, the use of Fibonacci retracement is highly subjective.

The first extension levels are 138.6%, 150%, and 161.8% – followed by 261.8% and 423.6%. So, Fibonacci extension levels may indicate areas where the next price moves might end up. Traders may use Fibonacci levels to determine potential entry areas, price targets, or stop-loss points. This can vary significantly on the individual setup, strategy, and trading style. Tony “The Bull” is a level 3 CMT student (passed level 1 & 2), technical analyst, Bitcoin supporter, and avid speculator. Tony is deeply fascinated by core market principles such as Elliott Wave Theory as they tie into mathematics like Fibonacci ratios.

On the lower side, the 38.2% Fibonacci retracement level is providing support at the $1,640 level. However, a break below this level could push the ETH price even lower toward the $1,600 or $1,530 level. From a technical perspective, Bitcoin has been unsuccessful in surpassing the $25,300 level and has experienced a sharp decline to reach the 38.2% Fibonacci retracement level at $23,700. These factors suggest that the demand for cryptocurrencies continues to grow, even in the face of broader economic challenges and regulatory headwinds.

What Is a Fibonacci Retracement in Crypto Trading?

Buying at the 38.2% retracement fibonacci cryptocurrency then selling at the 23.6% level could be an interesting strategy. This is, of course, highly dependent on individual strategy and many other technical factors. Typically, the tool is drawn between two significant price points, such as a high and a low. Usually, the tool is used for mapping out levels inside of the range, but it may also provide insights into important price levels outside of the range. While technically not a Fibonacci ratio, some traders also consider the 50% level to have some significance, as it represents the midpoint of the price range. Fibonacci ratios outside of the 0-100% range may also be used, such as 161.8%, 261.8% or 423.6%.

A Mercury year is 87.97 days, and is roughly the 0.236 Fibonacci ratio of the Earth’s cycle. The Fibonacci ratio is derived from the Fibonacci sequence popularized by Liber Abaci. The sequence itself isn’t all that is important, the ratio between each number is also significant. Liber Abaci solved the theoretical growth rate of the population of rabbits using a sequence of numbers now bearing the author’s name. Each next number in the sequence is the sum of the previous two numbers, starting with 0,1,1,2,3,5,8,13… and so on.

How to Use Fibonacci Retracements

Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The most noteworthy characteristic about this sequence is that each number in the sequence is around 1.618 times greater than the one preceding it; this number is also called the “golden ratio”. Bitcoin news portal providing breaking news, guides, price analysis about decentralized digital money & blockchain technology. In the video above, Tony “The Bull” walks step-by-step through each wave count in Bitcoin and uses textbook Elliott Wave examples to explain how the price action could develop. The target is contingent on Bitcoin price having ended its wave four expanded flat correction and started its wave five impulse.

• Receive live alerts on sudden market swings and upcoming DeFi projects.
• In the example below, however, it acted as a support level in the downtrend.
• A Fibonacci retracement forecast is created by taking two extreme points on a chart and dividing the vertical distance by Fibonacci ratios.

Resistance lines will be drawn at each key Fibonacci retracement level. Fibonacci crypto trading begins with reading the tool once it has been properly drawn as described above. Ralph Nelson Elliott found the ratios would appear within certain price patterns and is part of the foundation of Elliott Wave Theory.

Fibonacci Price

For instance, a trader notices that after significant momentum, a stock has declined 38.2%. As the stock begins to face an upward trend, they decide to enter the trade. Because the stock reached a Fibonacci level, it is deemed a good XRP time to buy, with the trader speculating that the stock will then retrace, or recover, its recent losses. In technical analysis, Fibonacci retracement levels indicate MATIC https://www.beaxy.com/ key areas where a stock may reverse or stall. Usually, these will occur between a high point and a low point for a security, designed to predict the future direction of its price movement. Fibonacci sequence crypto targets are quite accurate due to the fact they are based on important psychological levels or the exponential growth of the price of assets.

While this level isn’t obtained by calculating the ratios as we explained earlier in the article, setting a Fibonacci retracement level at the 0.5 level can be very useful. It often acts as a strong support/resistance within the trend and you should use this Fibonacci retracement level liberally. This is because Fibonacci retracement trading can be used on both short and long trading intervals. That said, crypto Fibonacci retracements on longer timeframes will present stronger trend indicators than those on shorter timeframes.

What Is The Golden Ratio?

We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. Following Virahanka’s discovery, other subsequent generations of Indian mathematicians—Gopala, Hemacandra, and Narayana Pandita—referenced the numbers and method. Pandita expanded its use by drawing a correlation between the Fibonacci numbers and multinomial co-efficients. In the example below, XRPUSD found support at 0.618 and 0.786 temporarily at several pullbacks before eventually losing the levels. Losing each level caused a strong reaction due to the large number of orders in these areas.

To conclude, GoodCrypto can be the perfect companion in the extremely demanding world of crypto trading. Once the price reaches the 0.236 line ($47,296), the trader can safely close the short position with an ~8% gain. Using Fibonacci retracement is appealing because there are no set rules on how to properly use Fibonacci retracement.

In the example below, Bitcoin price struggled with resistance at 0.5. A sell signal would be generated when price is at Fib resistance and the MACD lines cross bearish. In the example below, BTCUSD stopped precisely at the 0.618 Fib and not a single candlestick closed above the 0.5 level before a reversal started. A market entry at 0.5 with a stop loss placed above the 0.618 level would have been a profitable, low-risk short position. Finding Fibonacci retracement resistance works the same way, but by drawing from the top of a completed trend to the following trough.

Each number is approximately 1.618 times bigger than the preceding number. The term “golden ratio” is not only based on the sequence’s derivation but also because the ratio reflects in almost everything around us. In the next lesson, we’ll show you what can happen when Fibonacci retracement levels FAIL. Later on, around July 14, the market resumed its upward move and eventually broke through the swing high. Price pulled back right through the 23.6% level and continued to shoot down over the next couple of weeks. Here we plotted the Fibonacci retracement levels by clicking on the Swing Low at .6955 on April 20 and dragging the cursor to the Swing High at .8264 on June 3.

Fibonacci is used in Elliott Wave Theory, harmonic price patterns, and more to confirm signals, patterns, and possible trend changes. The tool’s settings can be customized further to add or reduce Fibonacci retracement numbers from the number string that projects the ratios as horizontal lines overlaid on top of price action. The below example has removed the price action for greater clarity on how to find the tool and what it looks like when drawn out.

Like any other indicator, Fibonacci is best used with other indicators. Apart from RSI, other tools that can be used to compliment it are moving averages, volume and other relative strength indicators. Used correctly with the right combinations of these other indicators, Fibonacci Retracement can help to maximize profit and reduce the risk of losing. It’s important to remember that while the Fibonacci tool can be useful in identity supports and resistances, the results are not guaranteed.

However, finding the right occasion when to use Fibonacci retracement is a matter of trading experience. Fibonacci retracement crypto may seem obvious in hindsight but placing confident trades in relation to these levels can be mind-boggling. But is Fibonacci retracement accurate and should you rely on swing high swing low Fibonacci in crypto trading? To answer this question, let’s first explain how to use the Fibonacci retracement in practice.

On the other hand, breaking down from sequence levels provides either short entries, or allows you to place stop losses in case of a fakeout. Let’s have a look at a Fibonacci extension and retracement example to see how it can help you determine price targets in a downtrend. In the chart below, we placed our Fibonacci bottom level at a major support line on $3,600 for ETH/USD. Determine significant support and resistance levels with the help of pivot points. Chart patterns, and indicators isn’t based on any scientific principle or physical law. As such, the Fibonacci retracement tool’s usefulness may be related to the number of market participants paying attention to it.

In order to increase the probability of certain retracements acting as advertised, it is best to use the tool along with other indicators like moving averages or the relative strength index . Specifically, a trader can derive levels in a trend that price is likely to respect by dividing a peak to trough or trough to peak distance by the golden ratio and other ratios in the sequence. Consequently, integrating the Fibonacci retracement trading rules depicted in this article into your technical analysis toolset will allow you to have better insight into market swings. In the example above, you can see how the Fibonacci sequence Bitcoin chart, where it allows you to take profits from price swings. Breakouts provide buy signals, where the target is the next Fibonacci retracement level.

When you think of popular cryptocurrency trading tools, the Fibonacci retracement level tool is right there at the top of the list. Helping traders reveal key levels to place buy and sell orders is a very simple way to explain the purpose of this highly effective tool and doesn’t entirely do it justice. We used the 61.8% Fibonacci level in all the charts we used as examples. You can form your crypto trading strategy around different Fibonacci levels as it works for you. It is up to you to figure out how best to use this technical tool to get the best crypto trading result. Just as the Fibonacci numbers are obvious in everything around us, so are they in trading.