Financial asset prices are constantly fluctuating, but they tend to settle in. You may have noticed that prices consolidate between certain ranges over and over again.
Financial assets frequently trade in a narrow range before moving to a new one. Therefore, trading will continue to take place in a range cycle.
When prices go up, the next thing to do is wait for them to come down. That is when retracement analysis comes in handy. Fibonacci retracements are one of the best predictors of potential price targets because they measure the percentage change over time to pinpoint where the next level will be.
What are Fibonacci Retracements?
Fibonacci numbers are derived from a ratio that can be found in the Fibonacci sequence. The ratios are based on the centuries-old concept of Fibonacci numbers, which an Italian mathematician invented in the 1400s.
Fibonacci retracements should not be confused with Fibonacci numbers. These are the Fibonacci ratios, which may be found all around the Fibonacci sequence. 38.2 percent and 61.8 percent are the most popular. It's worth noting that 61.8 percent is frequently rounded to 62 percent, whereas 38.2 percent is frequently rounded to 38 percent.
One of the most popular technical strategies for forecasting the potential extent of pullbacks or corrections is Fibonacci retracements. These Fibonacci ratios can be applied to many situations, including both advances and declines. Furthermore, chartists can combine these retracements with other indicators and price patterns to create a comprehensive strategy for trading.
Fibonacci retracing is a really useful way to track a pullback. It means looking at the previous advance and pullback to find specific percentages. For example, the chart below shows that Home Depot retraced about 50% of its previous advance.
How to Trade cryptos using Fib levels?
For crypto traders, the Fibonacci retracement tool is a fairly simple and effective way to trade.
First, find a trend. Then, apply the tool to both uptrends and downtrends to track investments or all-time frames to see the trend's development over time.
Drawing Fibonacci retracement lines is a great way to measure the completion of a trend. An uptrend is completed when the retracement lines are drawn from left to right, pointing up. The same goes for a downtrend. However, in this case, draw the lines from left to right, ending at the end of the trend.
Identify four basic levels to keep an eye on. Second, wait for the price to reverse near one of these levels. Third, anticipate a reversal of trend at any of these levels.
Be careful trading against the trend. When the prices are trending up, they will correct back down after making some retracements. Enter into a bullish trade near one of these levels:
Key Fibonacci retracement
The end of wave one of an impulse wave
The end of wave two of an impulse wave
The end of wave three of an impulse wave
Be patient and wait for the price to break out or react before entering long.
When trading in the crypto markets, you never want to buy at the top or sell at the bottom. So how can you determine where those levels are? The answer lies in Fibonacci retracement levels.