12.08.2020
Elliott and Fibonacci

Elliott and Fibonacci Retracement Trading Cryptocurrency: Watch The Waves

Fibonacci trading cryptocurrency is made on modern PC and laptops, but the concept dates back to Leonardo Fibonacci, a well recognized mathematician who live between 1180-1240. In fact, the method should have been called Elliott-Fibonacci to recognize the other contributor, Ralph Nelson Elliott, a financist who lived in later XIX century.

Aiming for trading perfection

In its basics, the algorithm states that price moves are not random, and they are sensitive to resistance and support levels. The former, in turn, get stronger when approaching the so called “golden ratio” levels. These strength and weaknesses progress just like the Fibonacci line of numbers does:

0:1:1:2:3:5:8:13, and so on…

This pattern is true for Bitcoin and other crypto traded on exchanges like Nominex. On the chart below that focuses on years 2014-2018 it is very visible how the asset bounces from resistance levels (which is retracement) and that reinstains growth from support lines.

Chart Bitcoin

Kshitij Anand, a contributor for India Economic times, published a piece of analysis confirming that ‘if you are a trader, you must have memorize Fibonacci ratios, i.e. 61.8%, 38.2% and 23.6% to find their application on stock charts’. Jumping down from those is called Fibonacci retracement, and the numbers are retracement levels, respectively. Those are the backbone of the technical analysis.

Traders’ experience with Fibonacci trading strategy

There are many ways to analyze crypto, equity and currencies but golden ratio based price prediction tools remain among the most popular. Trader-analyst Carolyn Boroden names fibonacci levels and fibonacci sequence as the most reliable one. She says that after doing some major analysis in currencies, the conclusion is: retracements and symmetry can work very well. Carolyn’s words are not based on plain math, these methods trend nicely in her past experience. Crypto trading has adopted resistance levels long ago, and this comes to all sorts of tokens and coins, from the most liquid trading tools to second tier instruments typically described as altcoins. Most assets move upwards, stop, come down and them swing high again after touching some physiologically important line.

ETH price chart

Another popular way to profitable cryptocurrency trading is sticking to the moving average parameter. See the following pic clearly demonstrating that once the price of Ethereum goes over the moving average line, it stays there for a while, and vise versa, as it beaks below the support, it takes time to regain market strength. It works even on daily intervals and candles.

Hints and advices to use in your daily trading routines

Here are some tips on Fibonacci trading: how to master the time and price advantage. Let’s use the most liquid coin in the crypto market, BTC, to study those.

  • Have a look at Bitcoin price, Nominex offers convenient selection of technical analysis tools. The period you choose really depends on your trading strategy. If you trade daily, don’t hesitate to use minutes or hours, if you look long term, stick to days. Weekly intervals are good as well but you must really feel like allocating your money for several months or even years;
  • Find proper support levels. By simply building the reverse or historic chart, you’ll quickly come to understand where the price changed its direction. Like, find several local highs and deduct fibonacci numbers of those. Fibonacci extensions are of the best use then price is moving into an area where other methods of finding support or resistance are not applicable or evident;
  • This means that when trading blockchain technology related assets, you shall look over other analytical tools and trading guides, and turn on trading Fibonacci mostly in the times of severe sell-offs or, on the contrary, rapid uplifts of the market.

Moving averages are your best friends for the calm days when key levels are predictable, financial markets react normally and changes in the moves are explained by normal human behavior.

How does this thing work in the first place?

To put it bluntly, Fibonacci trading patterns represent a sort of self-fulfilling prophecy. Many people in the market use similar trading strategies, and their combined reactions make the charts draw exactly what is needed. Fibonacci trading strategy in crypto works the same way as with the DAX index, FTSE or in the forex boiling rooms.

Any sequence of numbers once available to many becomes, effectively, a fibonacci retracement tool. The time zones are different depending on the interval you use for the analysis but overall, the pattern stays the same: levels of support vs levels of resistance, high and low, longs and shorts. Combine those smartly and analysis of Bitcoin price gets very natural to you.

Traders at any exchange basically see the same picture, and Nominex operating guys are no exception. The market of digital assets got really effective these days, so price differences between trading platforms have completely diminished. This can be observed only on some specific local, or country exchanges with national currency pairs.

Markets technical analysis gurus speaking

Key Fibonacci ratios are employed by many sophisticated traders with dozens (!) of years on the desk. Joe DiNapoli in his interview refers to areas where he feel the effects of this metrics. Just to remind you, DiNapoli has been involved in the markets for more than 38 years. He is also a proper and very conscise researcher, a globally recognized lecturer, and a strongly praised author. Joe has been C.T.A. charted for over 15 years and has shared his techniques with traders in all the major financial locations of Europe, Asia, the Middle East, Africa as well as in the US.

Joe DiNapoli trader

His key takeaways:

  • stick to lagging indicators which can be Displaced Moving Averages and the mix of MACD and stochastic to catch the trend;
  • once established the trend, use Fibonacci analysis, as a basic tool to gain positions and choose the destination, or ride the trend;
  • finally, set some profit targets, and those again are the best to be defined with Fibonacci techniques;
  • you don’t to spend years learning what I’ve already learned through mine, the approach above clearly gets you where you want to be.
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