Authored by: @hetty-rowan
Really an exception
Sometimes I wonder why the hell I agreed to write up to 3 financial posts a week ... Considering that I'm actually not that financially savvy at all. But it is Sunday again. The day my 3 LBI posts start again. And Sunday is the day I normally write about Technical Indicators. Today will be no exception to this. But what is really an exception is that I would really like to understand today's Technical Indicator… But I JUST DON'T GET IT! I admit, not feeling well doesn't do much good for me in trying to understand ...
The Fibonacci levels
Seriously, since I started to become more interested in the Technical Indicators that could be used in crypto, I have been interested in this indicator. The Fibonacci levels. It should be an incredibly powerful tool. And when I see it in the explanations scattered all over the internet ... then I see it too. But I just CANNOT to manage to draw that thing properly in my cards myself. Let alone get to the point where I can draw an EXTENDED Fibonacci in my cards.
It all sounds so beautiful, and when I see others drawing their Fibonacci levels it also looks very interesting because you can indeed see the support and resistance lines running at exactly the right points. In that regard, I can understand that this CAN be a powerful technical tool.
For those interested like me, below some technical explanation. What are those Fibonacci levels?
Let's start by looking at where the origins of these levels lie. It is one of the most special numbers in existence. We are dealing here with a "golden ratio" that mysteriously seems to occur everywhere in nature.
In the year 1170 a mathematical genius by the name of Leonardo Pisano was born in Italy, and he was nicknamed “Fibonacci”. This young talent brought the mathematical wisdom of the “Book of Abacus” to the West and had discovered a special, and now world-famous, series of numbers:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, etc.
If you're new to this sequence, it might be a fun exercise to figure out what the next number in this sequence will be before reading on.
Why is it so famous?
Each subsequent number in this “Fibonacci Sequence” is formed by adding the two previous numbers together. So if you did the exercise just now, you should have come up with the number 610 (377 + 233). None of these sounds very special yet, so why has this series become so famous?
The golden ratio
There is something special about this series. If you take every number in this series and divide it by the preceding number, you will always arrive at approximately 1.618:
- 89/55 ≈ 1.618
- 144/89 ≈ 1.618
- 233/144 ≈ 1.618
The number sequence is not entirely precise, but the higher you get in the sequence, the closer you get to 1.618. And this number is also called Phi and is known as "the golden ratio" and some even claim that it is proof that there is a God. These statements aren't just based on a special set of numbers. Phi goes far beyond that.
You can 'see' Phi everywhere!
You come across Phi in art, Phi you come across in humans, your phalanges have Phi as a proportion. You often come across Phi in a sunflower, even in a cauliflower Phi can be found if you look closely. But to really understand what Phi is now, you really end up in mathematics. And that is exactly my problem. I have never been good at math, and never will be good at math. Simple as that!
Back to Fibonacci
So for a complete mathematical explanation of what Phi is, I would have to copy and paste, and that's not my style, so I'm not getting into that. That's not the purpose of this post either, because it was supposed to be about the Fibbonacci levels, and how to use them in crypto trading.
Trading with Fibonacci
Because in the world of trading, the mysterious number is also so common that it has been turned into a trading tool that professional crypto traders worldwide make a lot of profit with. You now understand why I would like to understand this Technical Indicator so much! That's right, who doesn't want to make a profit?
Well now the explanation of how you can use these Fibonacci levels in crypto trading!
The numbers for crypto trading
In crypto trading you're not only looking at Phi itself, but also at its inverse function. Where Phi divides a Fibonacci number by the preceding number, in crypto trading the numbers are also divided by the following numbers or even by two numbers after that or more. Among other things, the following figures come from this:
1.618 = number / previous number
For example: 233/144
0.6180 = number / next number
For example: 144/233
0.3280 = number / second number below
For example: 144/377
0.2360 = number / third number below
For example: 144/610
2.618 = number / second previous number
For example: 377/144
These are all important numbers in the world of crypto trading, because you can use these levels to buy or sell your cryptocurrency for the most profit. To use the Fibonacci levels correct, it is of the utmost importance that you know WHERE to draw them in. And to know where to do that, you first have to get to the point where you can discover “Trends”.
And you then have to know what trend the price is moving in. As soon as you've figured that, you also know how to draw the Fibonacci levels. (Well usually, except for me of course). Sigh.
You use the 'Swing High, and the Swing Low' within a trend to properly map the Fibonacci levels.
In a downward trend, drag the Fibonacci tool from the swing low to the swing high.
With an upward trend, drag the Fibonacci tool from the swing high to the swing low.
For your memory :
- Swing High Is the highest high in a trend exactly before the point where the course went sharply down
- Swing Low Is the lowest low in a trend exactly before the point where the course went sharply up.
This is the most I can make of the Fibonacci Levels
I wish I could make more of it, I wish I could draw them in at the way they're supposed the drawn in a chart. But I'm sorry, I have to admit ... I Just Don't Get It.
But one last thing I could find on the internet ... is that many people come up with the predictions that Bitcoin could well go up to 400K USD in this bull market. This seems to stem from the EXTENDED Fibonacci levels.
- If we hit the Fibonacci level of 5,618, Bitcoin will peak at $76,000.
- If we reach the Fibonacci level like in 2013, 10,618, Bitcoin will peak at $170,000.
- If we reach the Fibonacci level like in 2017, 25,618, Bitcoin will peak at over $400,000
And for the observant readers ... Bitcoin has also doubled the Fibonacci levels in every bull run. What that will mean… I didn't get that far, because as I said at the beginning of this post. This is a tool I can't seem to get the hang of. I would love to hear your comments, and I will be forever grateful to the person who can make me understand this technical indicator.
So come on with your comments! Looking forward reading them!
Posted Using LeoFinance Beta
Just as important to mention. Whether the cryptocurrencies really care so much about the Fibonacci levels, and as it were, continue to move naturally between them ... or whether it is more because many people use these Fibonacci levels as a trading tool, making it a self-fulfilling prophecy, as it were. has become. I will leave that in the middle for a moment. Because here too, of course, a psychological effect plays a role. If enough people use this tool, and thus draw these levels in the maps, everyone will see the same support and resistance lines. With which this can also be MADE to support and resistance through the way people act.