The Crypto Market is like any other financial market, which is quite vulnerable to volatility and uncertainty. Therefore, many traders and investors use technical analysis to find out the right time to buy and the right time to sell their assets.
If you are a Crypto investor, of course, you already know what Fibonacci is. However, for those of you who are recently into crypto investing, it would be nice to know what Fibonacci is and how to use it for trading and investing in crypto.
In terms of technical analysis, many crypto traders use various tools and indicators to analyze the up and down movement of prices, to know when to buy and sell.
These indicators and technical analysis tools can be used to formulate trading strategies to make them more profitable.
Fibonacci is one of the tools that we can use to find out the level of resistance and the level of support for the price of crypto or stock.
The Fibonacci retracement level is one of the technical indicators that is often used in trading the crypto market. This analysis is based on the Fibonacci sequence discovered more than 700 years ago.
If you are interested in trading crypto futures, Fibonacci retracement is a technical indicator that you can use to come up with a higher-quality trading strategy. With this strategy, you can see the price trend, the biggest support price, and the biggest resistance price.
What is Fibonacci Retracement?
Before we discuss Fibonacci Retracement we need to know what Fibonacci is and Retracement itself. Fibonacci is a series of random numbers that are always used in various fields in the world of currency trading (forex), stock market trading, and also the crypto market.
While the retracement itself is a price reversal that is temporary and occurs in the middle of a big trend. This retracement is temporary, after that the price will go according to the majority trend.
For example, the ongoing trend is an Uptrend, then the price will not always be in an uptrend, but the price will experience a correction which will then rise or follow the ongoing big trend.
After knowing what Fibonacci and Retracement are, then Fibonacci Retracement itself is a trading tool that consists of horizontal lines and shows the level of support and resistance price positions that are likely to be formed. The numbers that appear are based on the Fibonacci number series pattern.
Fibonacci Number Series
The Fibonacci sequence is a series of numbers starting with the numbers 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, …
The next Fibonacci sequence of numbers is generated by adding up the two previous numbers. For example :
- 2 is found by adding the previous two numbers (1+1),
- 3 is found by adding the previous two numbers (1+2),
- 5 is (2+3),
After 34 what is the next number? The next number after 34 is 34 + 21 = 55. Likewise, after 55 you can add it to 34 which produces the number 85.
Here is a longer series of Fibonacci numbers
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, 6765, 10946, 17711, 28657, 46368, 75025, 121393, 196418, 317811, …..
By knowing the Fibonacci number series and how to calculate it, hopefully, you can develop a better and quality crypto trading strategy.
Fibonacci Retracement Level Formula
When the Fibonacci Retracement tool is applied to the chart, you can select two points. Once the two points are selected, a line is drawn based on the percentage of the price movement.
For example, the price of crypto A has increased from a price of 10 USDT to a price of 16 USDT. Then the 25% level will be at 14.5 USDT with the formula (16 – (6 x 0.25) = 14.5).
The formula can be seen that 16 is the highest price, 6 is the difference (change in price) and 0.25 is the percentage level of 25%.
Benefits of Fibonacci Retracement
Fibonacci has many benefits in the world of trading assets such as finance, stocks, and crypto. Some of the benefits that you can get by using Fibonacci Retracement include:
- Knowing the price points of support and price points of resistance, by knowing these price points you can develop a strategy for trading, especially at what price you will buy and at what price you will sell.
- Knowing the pattern of price movements, knowing you can also analyze in-depth and add other tools to find out the next price movement.
- Knowing the possibility of price increases and decreases in prices. If the price rises and touches the Fibonacci line, it is possible that the price will go up. vice versa
- Knowing the current price trend.
- Can be used to place entry orders by specifying a stop loss and also to determine the target price you want to set.
Now that’s the importance of Fibonacci retracement for technical analysis in developing trading strategies.