Crypto Trading: Using Fibonacci in Technical Analysis
No one ever said trading was easy.
But once you understand the tricks of the trade, the easier it can become.
Of the many tools to be familiar with are Fibonacci retracement lines.
Levels are based on the belief that stocks, indexes and crypto currencies have a tendency to retrace prior moves. To do so, traders must first find the two extremes on a chart, including a peak and a trough. Then, they must divide by key Fibonacci ratios, such as 23.6%, 38.2%, 50%, 61.8%, and 76.4%. It may sound confusing and odd.
So, when using this tool, those levels appear as a layer over your chart. Price is automatically calculated for the levels in most software applications.
Once those levels are identified, we then draw our horizontal lines at each % marker to define points of support and resistance. The goal is to help traders determine critical points where a stock is likely to move up or down based on historical support and resistance.
Let’s use NEO for example.
After drawing by Fib lines, we can clearly see where the coin has a recent tendency to find support or resistance. With this coin, we can see the 0.786 level has served as a strong line of support and resistance dating back to February 2018. We can also see that the 0.382-line has served as an area of heavy resistance, as it also did in February 2018.
Learn How to Spot Unique and Predictable Patterns in Cryptos
We can also see how Fib retracement lines can play a major role in trading the Litecoin (LTC).
In this Litecoin chart, you can see that the 0.382-level has often held as a line of support, while 0.618 has often served as a line of resistance.
Or, take a look at Ripple (XRP).
Here, you’ll notice that the 0.236-line has been a major line of support for the coil since February.
What those retracement lines tell you is at what price levels you should pay particular attention to. However, as with any technical indicator, the Fib retracements are not 100% accurate. When using this indicator, always confirm with other indicators such as Bollinger Bands (2,20), MACD, RSI and the Fast Stochastic.
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