FibonacciHello, Let us talk about 'Fibonacci.'
On this chart: You will read about where it came from? Why do we use it, and where does it help us.
Before we dive in to talk about Fibonacci Retracement levels and their use in trading, Let us talk about the origin of Fibonacci :
It all started with rabbits.
Yes, Rabbits!
Fibonacci became interested in a strange issue in 1202. He wanted to know the outcome if he had a pair of male and female rabbits and defined behavior for their offspring. The assumptions were as follows:
We have a pair of male and female rabbits that have just been born.
Rabbits mature after one month.
The gestation period of rabbits is one month.
When a female rabbit reaches puberty, she must become pregnant.
At each pregnancy, the female rabbit gives birth to one male rabbit and one female rabbit.
Rabbits never die.
Calculate how many pairs of this type of rabbit we will have after n months?
In mathematics, the Fibonacci sequence or series is the following infinite sequence of natural numbers:
0,1,1,2,3,5,8,13,21,34,55,89,144,233,377,610,987,1597,...
Take a look at this GIF, to get an idea of this infinite sequence:
drive.google.com
The Fibonacci spiral: an estimate of the golden spiral generated by drawing circular arcs attaching the facing corners of the squares adjusted to the values of the sequence; by successively attaching squares of side 0, 1, 1, 2, 3, 5, 8, 13, 21 and 34.
The sequence begins with the numbers 0 and 1; "each term is the total of the past two" is the recurrence relation that defines it.
The elements of this sequence are called Fibonacci children. Leonardo de Pisa described this sequence in Europe, a 13th-century Italian mathematician also known as Fibonacci. It has numerous applications in computer science, mathematics, and game theory. It also appears in biological configurations, such as in the branches of trees, in the arrangement of leaves on the stem, in the flowers of artichokes and sunflowers, in the inflorescences of Romanesco broccoli, in the configuration of coniferous conifers. In the reproduction of rabbits and in how DNA encodes the growth of complex organic forms. Similarly, it is found in the spiral structure of the shell of some mollusks, such as the nautilus.
Leonardo Pisano, Leonardo de Pisa, or Leonardo Bigollo, also known as Fibonacci, was born in 1170 and died in 1240. Long before being known in the West, the Fibonacci sequence was already described in mathematics in India in connection with the Sanskrit prosody.
Susantha Goonatilake notes that the development of the Fibonacci sequence "is attributed in part to Pingala (year 200), later associated with Virahanka (about 700), Gopāla (about 1135) and Hemachandra (about 1150)". Parmanand Singh cites Pingala (around 450) as a forerunner in the discovery of the sequence.
Now let us talk about Fibonacci in the finance world. You might use it too, as Fibonacci Retracement Levels. (As you see on the chart)
The second law of technical analysis indicates that values move in trends, bullish or bearish. Once a trend has given sufficient signs of termination, either by breaking its trend line, confirmation of a trend reversal figure or any other valid factor according to technical analysis theory, the analyst contemplates the possibility of a setback. A pullback represents, in simple terms, a move in the opposite direction to the past trend. It can take the form of a crash in price after a bullish move or a rebound in price after a downtrend. Although the first could properly be called a retracement and the second rebound or rally, technically, the term retracement includes both.
Within technical analysis, Fibonacci retracements refer to the possibility that the price of a financial asset will retrace a considerable portion of the original movement and find support or resistance levels at the levels set by the Fibonacci numbers before continuing. The above address. These levels are constructed by drawing a trend line between the extreme points of the movement in question and applying the critical percentages of 23%, 38.2%, 61.8%, 76.8%, and 100% to the vertical distance.
Fibonacci retracements are used to confirm suspicions of a market movement. Levels of support and resistance can indicate possible bullish or bearish market trends and indicate to people when is the best time to open long or short positions. This means that Fibonacci retracements can be highly fulfilling for people who know when to use them correctly.
Upon confirmation of rejection in the price, we will try to calculate the probable magnitude of the movement. In order to achieve this, specific percentages collected from the Fibonacci series are applied to the total magnitude of the previous trend. The percentages used are as follows:
61.8%: Also recognized as the Golden Ratio, or golden number, it is the limit of the result obtained from the division of an element of the Fibonacci series by the following number, as the series tends to infinity.
38.2%: It is obtained by subtracting 61.8% from the unit (1.000 - 0.618)
100.%: Equivalent to the total magnitude of the primary trend.
Reversal percentages should be calculated after the end of a trend has been confirmed, never while the trend continues.
Considering that trends are always part of a longer-term trend and, in turn, are made up of shorter-term trends, the question on which of these trends should be calculated as setbacks? There might not be a simple answer. We must calculate the setbacks on that trend that has given clear signs of termination in general terms.
A weak trend may have a 31.8% retracement, while a powerful trend may have a 61.8% retracement before returning to its original direction.
Some sources mention a critical zone of 33 to 38.2% and 61.8 to 67% instead of specific levels.
Fibonacci retracements form an essential part of the Elliott Wave Theory.
The most scathing criticisms against Fibonacci retracements are based on the random walk theory, arguing that there is no justification for assuming that price action has any reason to respect predetermined retracement levels.
However, it is not suitable to use Fibonacci retracement all the time. There are a few downsides too:
Fibonacci retracement shows only static price levels. It is unlikely to say that a specific cryptocurrency price will not pass or stay below predicted levels.
Many external factors determine the price of a coin. They have to be taken into account when determining trading decisions.
Fibonacci retracement levels are close to each other, so it is challenging for a professional trader to determine the accuracy from which to predict the value of a particular coin in the future.
Suppose you're interested in using this great indicator. In that case, you can simply go on your TradingView chart and the dashboard, click on 'Indicators & Strategies' and search for Fibonacci and find the best one suited for you.
Have you ever used this indicator? What do you think the pros and cons are?
Let me know your ideas.
Good luck.
