Fibonacci Retracement Levels – Bitcoin and Altcoin Trading
A Tool For Price Target Estimations in Crypto Trading
One of the most important tools for analyzing charts are the famous Fibonacci levels. Pretty much every trader uses them, and that’s probably the reason why they are so powerful.
Fibonacci retracement levels are a tool which help in estimating possible trade entries or exits.
The Fibonacci numbers come from a mathematician named Leonardo Fibonacci, who lived in the 13th century. Within the numerical sequence of those numbers, each number is about 1.618 times greater than the one before. The calculation has to do with the famous ‘golden ratio’, which is known from mathematics as the divine proportion.
To keep it simple and not waste time, let’s skip the formula explaining how he came to that number and let’s just learn the levels and how to use them for trading.
In general terms, the Fibonacci levels are key levels for potential price reversal areas, or key levels of resistance and support. These levels are 23.6%, 38.2%, 50%, 61.8% and 100% of a move, which are measured with the Fibonacci tool. Additionally, there are extended Fib levels beyond the measured move, which can be used to estimate future levels above or below.
So, when using this tool, those levels appear as a layer over your chart. Price is automatically calculated for the levels.
How Exactly To Use Fibonacci Levels
Measuring an upward movement:
So the measurement goes from the lows at the “1” up to the highs at the “0” – using the tool from lows to highs will show us the retracements back down. First price moved down precisely to 0.382 (38.2%). You see how price also hit the 0.618 and the 0.786 levels clearly and how it had built a channel between those levels for about 2 days till it broke further down.
Measuring a downward movement:
Using the tool from highs to lows will show the retracement levels on the way back upwards.
What those retracement lines tell you, is at what price levels you should pay particular attention to. So, of course, you cannot know in advance if price will hit the 50% or 61.8% mark. However, you can use those levels for exits or to put your stop loss orders below them.
Depending on your entry price, you could already take profit at the 50% Fibonacci level, if that would already be, for example, a 15% profit area for you, depending on your entry. Skilled traders use position sizing as a hedging strategy to lock in secure partial profits earlier, then they look for possible higher gains for the rest of their position.
Chart images: © tradingview.com