One of the most widely followed mathematical indicators in cryptocurrency trading – the Fibonacci – is based on the Golden Ratio commonly observed throughout nature, and suggests that following a clearly defined trend move, the market retraces a certain percentage of the directional move.

Trend move retracements are often observed at the roughly one third and half level, meaning that approximately one third to half of an up or down move can be given up in the ensuing retracement.

Fibonacci retracements are defined more precisely at the 38.2%, 50%, 61.8% levels, producing key support/resistance levels. The ratios are based on the Fibonacci numbers, in which each successive number is the sum of the two previous numbers.

e.g. 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.

A number of relationships exist between these numbers, such as the fact that any given number (after 3) is roughly 1.618 times the previous number.

Changes in trends tend to take place near the lines created by Fibonacci related technical indicators such as Arcs, Fans, Retracements and Time Zones.

Fibonacci lines are drawn by connecting the beginning of a large move to its end. The Fibonacci can be drawn by connecting the lower shadow of the lowest candlestick (in the price move), to the upper shadow of the highest candlestick.

Drawing Fib lines is not an exact science, and some discretion should be allowed for connecting the top and bottom of candlestick bodies as opposed to candlestick shadows.

Massive up moves such as the one exhibited by Bitcoin (BTC/USD) in 2017 above tend to pullback quite steeply eventually, and is at the time of the chart capture, trying to find support at roughly the 78.6% Fib retracement support level (as calculated by assuming the rally began at the start of 2016 and ended with the December 2017 peak).

If the rally start was assumed to have begun several years earlier, at a level below where BTCUSD was at the start of 2016, the 61.8% Fib support is only slightly lower than as illustrated in the chart above.

Leave a Reply

Your email address will not be published. Required fields are marked *

Subscribe to our NEWSLETTER

Coins Shield

We build crypto products that are simple, elegant, and secure. Whether you are an individual or an institution, we want to help you buy, trade, and store your bitcoin and cryptocurrency. We are committed to earning and maintaining your trust. We believe that in order to do so, we must invest in our four pillars for the long-term. Product, Security, Licensing, and Compliance are the inputs that generate a trust output.

Crypto is about giving you greater choice, independence, and opportunity. We are here to help you on your journey.

Quick Links

© 2021 Coins Shield. All rights reserved.

Risk Warning

The Financial Products offered by the company include Contracts for Difference ('CFDs') and other complex financial products. Trading CFDs carries a high level of risk since leverage can work both to your advantage and disadvantage. As a result, CFDs may not be suitable for all investors because it is possible to lose all of your invested capital. You should never invest money that you cannot afford to lose. Before trading in the complex financial products offered, please ensure to understand the risks involved.

Refund Reason