Can You Use Fibonacci Levels to Trade Cryptocurrency?
One of the best ways to trade cryptocurrency is by spotting support and resistance points.
With Bitcoin, for example, the coin has caught the same support line at $6,000 several times. In addition, technical pivot points were used to confirm exact buy-in points.
For example, in July 2018, BTC fell to its lower Band around $5,920. W%R was below its 80-line. Shortly after, BTC rallied to $8,374.
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In late March 2018, BTC fell to its lower Band at $6,000. W%R was below its 80-line. Shortly after, BTC rallied from $6,000 to $10,000. In February 2018, BTC fell to its lower Band at $6,000. W%R was below its 80-line. Shortly after, BTC rallied from $6,000 to $12,000.
At $6,000, that’s Bitcoin’s line in the sand. It falls to that point, you buy, wait, sell. And repeat.
We can also spot support and resistance with Fibonacci retracements.
Levels are based on the belief that stocks, indexes and cryptocurrencies have 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.
Once those levels are identified, we 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.
Don’t worry if you can’t draw in a straight line. Most systems have the lines pre-drawn for those absent artistic talent, including myself at times.
Let’s look at Bitcoin for our example.
After drawing by Fib lines, we can clearly see where the coin has a recent tendency to find support or resistance on a three-month chart. With this coin, we can see exactly where the coin bounces from or finds resistance.
Then again, we never want to rely on support and resistance when spotting opportunity.
We also want to be fully aware of the herd mentality gauge. To do so, we study Bollinger Bands (2,20), MACD, relative strength (RSI) and Williams’ %R for example to spot potential pivots as we detailed above.
When it comes to technical analysis, there is no such thing as 100% success.
All we can do is try new things and create a system that helps produce greater accuracy. For me, personally, the herd mentality gauge is your best bet.
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