An Overview of the Fibonacci crypto trading strategy
Fibonacci ratios represent a sequence of numbers, with each number representing the sum of the two prior numbers. Introduced by Leonardo “Fibonacci” Pisano, an Italian mathematician, the Fibonacci ratios used in trading are derived from mathematical relationships between numbers in the sequence.
As a result, the main Fibonacci retracement levels are: 23.6%, 38.2%, 50%, 61.8% and 78.6%, with the three central numbers, namely 38.2%, 50% and 61.8?ting as key levels.
In addition to the retracement levels, traders also use Fibonacci extensions to predict where future waves of the trend will go. Unlike retracement, which is used to determine support and resistance levels of the pullback, extension levels aim to show us where the price may head once the main support/resistance is broken.
The three key Fibonacci retracements are the key for this strategy. The stronger the initial trend is, the milder the retracement is expected to be. Essentially, the basic idea behind this strategy is to buy on a retracement at one of the key Fibonacci support levels when the market is trending up, and vice versa.
This strategy can be classified under the “ride the trend” trading approach, as the price retraces to a previous price level before resuming in the direction of its trend.