Fibonacci Analysis (or Fibonacci retracement) is one of the technical analysis tools used by traders to identify potential support and resistance levels in the price movement of an asset, such as stocks or crypto.
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š¢ Origin of the Name "Fibonacci"
This name comes from a 13th-century Italian mathematician, Leonardo Fibonacci, who discovered the Fibonacci sequence:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, etc.
From this sequence, important ratios used in trading emerge:
0.236 (23.6%)
0.382 (38.2%)
0.500 (50%)
0.618 (61.8%)
0.786 (78.6%)
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š Function of Fibonacci in Trading
Fibonacci retracement helps traders to:
Determine where the price is likely to reverse (reversal)
Predict correction levels (retracement) of an uptrend or downtrend
Determine entry points, take profit, and stop loss
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š How to Use Fibonacci Retracement
1. Identify the trend (up or down).
2. Pull the Fibonacci tool from swing low to swing high (if the trend is up), or vice versa (if the trend is down).
3. Observe where the price bounces between the Fibonacci levels.
Example:
If the price of Bitcoin rises from $20,000 to $30,000, and then drops back to $26,180, that means a 38.2% correction from the previous upward movement.
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š Example of Use in Crypto:
For instance:
BTC rises from $40,000 to $50,000
Then retraces to $46,180
ā”ļø This means the price touched the 38.2% level, which could be strong support to continue the rise.
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ā ļø Important:
Fibonacci is not always accurate. It is just a tool and should be used in conjunction with other indicators such as RSI, MACD, or candlestick patterns.
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