Just as in nature, Fibonacci ratios seem to play a role in the stock market. Traders try to use them to find out the critical points where an asset’s price may have momentum, especially with the current fluctuation in crypto markets.
Fibonacci retracements are one of the most common analyses because it is relatively simple. For example, they can be used to draw support lines or set target prices. They can even act as a mechanism in a trading strategy.
Graphically, Fibonacci retracements are horizontal lines that show where support and resistance levels can be found. Each ratio relates to each level and indicates how far a previous move has retraced the price. Many trading platforms have a tool that automatically plots these horizontal lines.
Fibonacci retracement is obtained by creating two points on a chart and dividing the vertical length by the main Fibonacci ratios: 23.6%, 38.2%, 50%, 61.8%, and 100%.
5 Main Characteristics of Fibonacci Retracement
1. Traders can use this indicator in several ways. Those who make profits using the Fibonacci Retracement claim that it is effective, while those who do not make profits claim that it is unreliable. If everyone used the same Fibonacci ratios, the price action would reflect this event.
2. The principle behind the Fibonacci indicator is a numerical quirk that is not based on anything logical. Fibonacci ratios, numbers, and sequences are the results of a mathematical process, which does not mean that they are unreliable, but it may be difficult for some traders to understand the basis of this indicator.
3. The Fibonacci indicator only signals possible reversals, corrections, or counter-trend rebounds.
4. Many traders have success using this indicator when setting trades within long-term price trends.
5. Fibonacci retracements will have more power if used in conjunction with other indicators and technical analyses.
