Trading For Beginners 101: What is Fibonacci And How To Use In Crypto? (Part 1)

Continuing the series about candles, in this article we will introduce everyone to one of the important factors that I use to trade that is Fibonacci. When trading some of us are always trying to find the bottom and top to be able to trade optimally, but this is not necessarily the best way. Because all technical methods are just predictions, and predictions cannot be 100% certain. Instead of guessing the bottom and top, based on this indicator, we can confirm the potential reversal zone. Let’s more details with Coincu.

What is Fibonacci?

Before learn how to use Fibonacci in trading crypto we will learn a little history of Fibonacci who made a great tool. Leonardo Fibonacci, a well-known mathematician, was born in Italy but traveled through the Middle East, Northern Africa, and Europe during the 12th and 13th centuries. He is credited with recognizing this number pattern. This recursive pattern is the sum of the two previous numbers. Fibonacci named this sequence the answer to the famous rabbit problem, and it begins with 0,1,1,2,3,5,8,13,21,34,55,89,144, and so on. Example: 1=0+1; 2=1+1; 3=1+2;

He discovered that if he starts with 1 and adds the number before it, a recursive pattern forms, pre-existing in nature. Things like spirals on a pine cone and leaves on a flower use Fibonacci numbers.

In general, Fibonacci is divided into two types as follows:

• Fibonacci Retracement –0.236, 0.382, 0.5, 0.618, 0.786 -> as potential support and resistance areas.
• Fibonacci Extensio – 0, 0.382, 0.618, 1.000, 1.382, 1.618 -> take profit levels

How to trade with Fibonacci Retracement?

The first thing you need to know is that the Fibonacci tool usually works best when the market is trending clearly. The idea here is that you will make a buy order on the retracement of the price at the Fibonacci support levels created when the market is up, and a sell order based on the price retracement at the resistance levels created by Fibonacci when the market is down.

To use the Fibonacci retracements, you must first identify a top-to-bottom move where you can use the Fibonacci retracement tool.

• Bottom: The origin of a new price or trend move. 
• Top: Where the trend move pauses and reverses to make a retracement. 

Case 1: Uptrend

Look at chart ETH/USDT 4h. We set the Fibonacci retracement by selecting the lowest price is $1356 on July 26 and pulling it up to a highest price $1,786 on July 28. Now, we would expect that if ETHUSDT price down from the top, it will return at the key Fibo levels: 0.236, 0.382, 0.5, 0.618, 0.786 where many traders will make a buy order.

Looking at the chart we can see that: Price broke the support at 0.236, 0.328 and continued to reduce for the next 5 days. It has touched fibo 0.5 this is the strong support zone and it cant close the price below this key zone. After that, the market turned to the upside and is currently approaching the fibo 0.236 which is now the resistance area. If you make a buy order at Fibo 0.5 you will have profit.

Make a long order:

• Entry: Fibo 0.5
• Take profit: Next resistance zone
• Stop loss: Below the Lower shadow

Case 2: Downtrend

Look at chart ETH/USDT 4h. We set the Fibonacci retracement by selecting the highest price is $1921 on June 06 and pulling it up to the lowest price $878 on June 18. Now we will look over that the downtrend will have a slight upward correction and touch Fibo levels and return to the downtrend again.

Looking the chart we can see that the Fibo 0.382 has strong resistance and we have a profit if we make a sell order in this zone. It can be seen that in the above 2 examples, the price has received support or resistance from the Fibonacci retracement levels. However, the price doesn’t always bounce back from Fibonacci levels. These should only be considered areas of concern. We will incorporate more factors for this Fibo trading later.

Make a Short order:

• Entry: Fibo 0.382
• Take profit: Next support zone
• Stop loss: Above the upper shadow

Verdict

While Fibonacci levels can give you a higher chance of success, it is not always the case, like any other indicator. You won’t know if the price will stop at 0.236 or 0.382. Maybe it will hit 0.50 or 0.618 before turning the main trend or many times it won’t turn back after hitting these levels.

If you have any questions, comments, suggestions, or ideas about the project, please email ventures@coincu.com.

DISCLAIMER: The Information on this website is provided as general market commentary, and does not constitute investment advice. We encourage you to do your own research before investing.

Alan

Coincu Ventures