Comment
Author: Admin | 2025-04-28
Conversely, a swing low is the low candlestick stick of a trend with a higher low on each side.Once these points are identified, select the Fibonacci retracement tool in your trading software to connect a swing low to a swing high. Potential support levels will be generated, known as retracements.Each retracement is derived from the vertical "trough to peak" distance divided by ratios in the Fibonacci sequence.As you can see, the retracements of 0.236, 0.382, 0.5, 0.618, 0.786 were all respected as support, at least temporarily, as price rebounded from its September plunge.If a trader was to take advantage of this tool from November on, he or she would have had an idea as to where price might land before making its next move, revealing ideal trade entry or exit points.Finding Resistance LevelsThe process to find potential resistance levels is largely the same as before, except this time you will be connecting the swing high to swing low.The retracements will again appear by dividing the distance from peak to trough using ratios in the Fibonacci sequence.In the above chart, the anticipated resistance levels for Stellar Lumens (XLM/BTC) were calculated using the Fibonacci tool by connecting the swing high of 0.00006335/BTC to the swing low of 0.00002139.Once again, price reacted to the levels as advertised.The 0.786, 0.618, 0.5, and 0.382 retracements all provided resistance on several occasions which would have provided a trader with optimal targets to take profits on his or her position.ConclusionIt's important to remember that while the Fibonacci tool can be useful in identity supports and resistances, the results are not guaranteed. In order to increase the probability of certain retracements acting as advertised, it is best to use the tool along with other indicators like moving averages or the relative strength index (RSI).For example, if a moving average is in the same location as a Fibonacci retracement, price is more likely to react to the level given there lie two support or resistance obstacles, which when combined are more powerful than one.If you went through the sequence calculating each ratio, you may have noticed 0.5 is not one of them yet, it appears as a level in the Fibonacci Retracement tool. Its true, 0.5 is not a ratio in Fibonacci sequence but is included in the tool because it marks a 50 percent trend retracement, which price has a funny way of reacting to as support or resistance.Disclosure: The author holds BTC, AST, REQ, OMG, FUEL, 1st and AMP at the time of writing.Golden ratio via Shutterstock; Charts via TradingViewSam OuimetJunior markets editor for CoinDesk, the global leader in blockchain news.Disclosure: I currently own BTC, LTC, ETH, ZEC, AION, MANA, REQ, AST, ZIL, OMG, 1st, and AMP.
Add Comment