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To analyze the market, traders use different tools and indicators, one of the most reliable are support and resistance levels. Players need price benchmarks, they help to understand whether it is profitable to open a deal right now, and what position to buy or sell an asset. It is difficult to pinpoint support and resistance, but the so-called Fibonacci numbers help with this. Let’s figure out what it is, how to use Fibonacci in trading.
What are called Fibonacci numbers?
lines in trading are a grid consisting of several horizontal levels, they are placed on the chart in one move. This popular indicator is based on a principle established as far back as the 12th century. The sequence of Fibonacci numbers in trading is an endless series of numbers, where each number is equal to the sum of the previous two: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55 and so on. In digital asset trading, this chain of numbers has an interesting property. If you divide each number by the previous one, the result is always the same – 1.618.
For traders, Fibonacci levels show the strength of the course movement direction. They indicate a pronounced trend that affects quotes. With the correct construction and interpretation of the grid, a trader can determine a suitable entry point to the market.
How to use Fibonacci levels?
To use Fibonacci in trading, you need to understand what the essence of the popular indicator is. It is also called asset price correction levels. The chart passes through the levels, it reaches a certain point, after which it rolls back to the previous value or back, not reaching the previous one. On price rollbacks against the trend, it is not recommended to open deals due to the unpredictability of the correction, the rate at this moment is completely dependent on supply and demand in the market. And if there are specific signals about the development and continuation of the trend through the breakout of the Fibonacci lines, you can open a position. But it is worth remembering that this is only a forecasting tool, it does not give an exact guarantee of the success of the transaction.
Fibonacci levels in cryptocurrency trading are set manually, the trader can find the indicator in the toolbar on the trading floor. To analyze a downtrend, the indicator is drawn from the beginning of the price movement to the end. In an uptrend, the instrument extends from the bottom to the top. After applying the tool, the indicator automatically sets price correction levels, they reflect the percentage of the total rate movement.
The level set in the middle, between the beginning and the end of the rate movement, shows a 50% correction. In the future, it will play the role of a support and resistance level, which changes depending on the trend. The retracement level shows how serious a price pullback can be. The most common levels are 38.2%, 50% and 61.8%, but there are others that are also fixed and give effective results in the analysis.
Application in practice
It is rather difficult for a novice trader who does not have experience in technical analysis to figure out how to use Fibonacci levels . Let’s try to tell on the example of an upward trend.
Example one: an uptrend reached a certain level, after which it bounced off it and went into a correction. In this case, the exchange user buys the asset and opens a sell position higher.
Or the second example of analysis: the uptrend ignored the correction level and moved on. In this case, the trader does not buy the asset, since the entry point for the transaction has not been found. The trader needs to wait for the next regular price correction.
The chart rebounded from the level of 38.2, and the player opened a deal. Subsequently, the trend ignored the level of 23.6 and did not enter a correction.
For beginners, Fibonacci in trading is only effective if you know how to use the indicator correctly. This is a complex method of analysis that requires detailed analysis and study. On the Crypto Crew course, you will learn how to use Fibonacci lines in trading , learn how to correctly interpret indicators, find the optimal entry points for a trade, increase the profitability of trading on the cryptocurrency exchange, and also master other popular technical analysis tools.