Application of Fibonacci in Crypto
1. Introduction:
Fibonacci retracements are popular among technical traders. They are based on the key numbers identified by mathematician Leonardo Fibonacci in the 13th century. Fibonacci’s sequence of numbers is not as important as the mathematical relationships, expressed as ratios, between the numbers in the series.
n technical analysis, a Fibonacci retracement is created by taking two extreme points (usually a peak and a trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%.
2. Retracement:
Fibonacci retracement levels are horizontal lines that indicate the possible locations of support and resistance levels. Each level is associated with one of the above ratios or percentages. It shows how much of a prior move the price has retraced. The direction of the previous trend is likely to continue. However, the price of the asset usually retraces to one of the ratios listed above before that happens.
3. Extension:
Fibonacci extensions are a tool that traders can use to establish profit targets or estimate how far a price may travel after a pullback is finished. Extension levels are also possible areas where the price may reverse.
Fibonacci extensions don’t have a formula. When the indicator is applied to a chart, the trader chooses three points. The first point chosen is the start of a move, the second point is the end of a move and the third point is the end of the retracement against that move. The extensions then help project where the price could go next. Once the three points are chosen, the lines are drawn at percentages of that move.
Fibonacci extensions are a way to establish price targets or find projected areas of support or resistance when the price is moving into an area where other methods of finding support or resistance are not applicable or evident. If the price moves through one extension level, it may continue moving toward the next.
4. Fan:
Fibonacci fans are sets of sequential trendlines drawn from a trough or peak through a set of points dictated by Fibonacci retracements. … Traders can use the lines of the Fibonacci fan to predict key points of resistance or support, at which they might expect price trends to reverse.
The Fibonacci ratio can be used to describe the proportions in things from nature’s smallest building blocks, such as atoms, to the most advanced patterns in the universe, like unimaginably large celestial bodies. Nature relies on this innate proportion to maintain balance, but the financial markets also seem to conform to this “golden ratio.”
5. Channel:
The Fibonacci channel is a technical analysis tool that is used to estimate support and resistance levels based on the Fibonacci numbers. It is a variation of the Fibonacci retracement tool, except with the channel the lines run diagonally rather than horizontally.
In order to draw a Fibonacci channel, the trader must first determine the trend direction. The Fibonacci channel can be applied to both short-term and long-term trends, as well as to uptrends and downtrends. Lines are drawn at 23.6%, 38.2%, 50%, 61.8%, 78.6%, 100%, and the extension levels of 161.8%, 200%, 261.8%, 361.8%, and 423.6%, at the discretion of the trader.
- 6. Arc, Circle:
Fibonacci arcs are half circles that extend outward from a
line connecting a high and low, called the base line. These arcs intersect the base line at the 23.6%, 38.2%, 50%, 61.8%, and 78.6%. Fibonacci arcs represent areas of potential support and resistance. The arcs are based on both price and time as the arcs will get wider the longer the base line is, or narrower the shorter it is. Fibonacci arcs are typically used to connect two significant price points, such as a swing high and a swing low. A base line is drawn between these two points and then the arcs show where the price could pull back to, and potentially bounce off of.
The arcs are derived from the base line that connects a high and a low. The half circle arcs show where the price may find support or resistance in the future. Following a price rise, the arcs show where the price could pull back to before starting to rise again. Following a price decline, the arcs show where the price could rally to before starting to fall again.
7. Time zone:
Fibonacci time zones are a technical indicator based on time. The indicator is typically started at a major swing high or swing low on the chart. Vertical lines then extend out to the right, indicating areas of time that could result in another significant swing high, low, or reversal. These vertical lines, which correspond to time on the x-axis of a price chart, are based on Fibonacci numbers.
KEY TAKEAWAYS
- Fibonacci time zones are vertical lines that represent potential areas where a swing high, low, or reversal could occur.
- Fibonacci time zones may not indicate exact reversal points. They are timebased areas to be aware of.
- Fibonacci time zones only indicate potential areas of importance related to time. No regard is given to price. The zone could mark a minor high or low, or a
significant high or low.
- Fibonacci time zones are based on the Fibonacci number sequence, which gives us the Golden Ratio.
8. wedge:
A Fib Wedge is a set of arcs spreading out of the point of a trend’s beginning.
These arcs are placed on levels formed by a Fibonacci number series. Generally, the Fib Wedge is a kind of analogue of the Fibo Retracement. The Fib Wedge determines the end of correction and support levels.
