The relentless pursuit of trading has led traders to invent various technical analysis theories in an attempt to predict trends using a 'scientific' approach. Fibonacci retracements are also aThe relentless pursuit of trading has led traders to invent various technical analysis theories in an attempt to predict trends using a 'scientific' approach. Fibonacci retracements are also a
What are Fibonacci Retracements?
The relentless pursuit of trading has led traders to invent various technical analysis theories in an attempt to predict trends using a 'scientific' approach. Fibonacci retracements are also a commonly used technical analysis method used to determine market support and resistance levels. Support refers to the potential level where the price may stabilize and stop falling during a downtrend. Resistance, also known as a pressure level, refers to the potential level where the price may face resistance and reverse its upward movement during an uptrend.
Fibonacci retracements are derived from a set of numbers discovered by the mathematician Leonardo Fibonacci. This set of numbers is called the Fibonacci sequence or the golden ratio sequence.
Fibonacci Sequence
Leonardo Fibonacci was a brilliant mathematician, and in 1202, he wrote the book 'Liber Abaci,' which introduced the Arabic numeral system to the Western world. In this book, he posed an interesting problem: There is a pair of adult rabbits, and they produce a pair of baby rabbits every month. The baby rabbits, once a month old, can also produce another pair of baby rabbits. If each pair of rabbits goes through this process of birth, maturation, and reproduction, and they never die, the question is, how many pairs of rabbits will there be after N months?
If we represent this using a sequence, we get the famous Fibonacci sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144... Each subsequent number in the sequence is the sum of the previous two numbers, and these numbers exhibit specific ratio relationships, which are: 0%, 23.6%, 38.2%, 50%, 61.8%, 78.6%, and 100%. Although 50% is not a Fibonacci ratio, many still consider it to be of significant importance.
In 1611, a scholar discovered that the Fibonacci sequence converges to the golden ratio, which is 1.618033987... Later, people found the Fibonacci sequence in various fields. In everyday life, the total number of petals on a flower often corresponds to a Fibonacci number. In modern physics, based on the Fibonacci sequence, you can calculate the quasiperiodicity of three-dimensional physical space for the golden ratio and platinum ratio. In architecture, many enigmatic structures follow the Fibonacci ratio, such as the ratio of the height to the half-base length of the triangular faces on the pyramids. The Fibonacci sequence is also used in trading to uncover the mysteries of price increases and retracements.
The Meaning and Purpose of Fibonacci Retracements
The market price trend involves moving in a certain direction with occasional reversals or secondary minor trends within the larger trend. Fibonacci retracements use Fibonacci ratios: 0%, 23.6%, 38.2%, 50%, 61.8%, 78.6%, and 100%, to determine the extent of market retracements and rebounds based on these ratio relationships.
Thus, we can use Fibonacci retracements to determine potential resistance or support levels in the market, guiding traders on entry and exit points. In an uptrend, if the market experiences a pullback, drawing a Fibonacci retracement allows us to identify potential support levels, where prices may stabilize and then resume the upward trend. In a downtrend, if the market experiences a rebound, drawing Fibonacci retracements can help us identify potential resistance levels, and when prices reach these levels, the market may continue to decline.
The above is just a theoretical introduction. In actual trading, the prices of digital currencies are influenced by various factors, including supply and demand dynamics, project fundamentals, and news. The Fibonacci retracement indicator may become distorted. Therefore, strict risk management is essential.
How to Use Fibonacci Retracements
In technical analysis, Fibonacci retracements can be drawn on a K-line chart by selecting two extreme points, typically the lowest and highest points in a given period. The starting and ending points differ in uptrends and downtrends. In an uptrend, we start at the lowest point with a value of 1 (or 100%) and end at the highest point with a value of 0 (or 0%). In a downtrend, we start at the highest point and end at the lowest point.
On the MEXC website, you can use Fibonacci retracements by following these steps:
① Using MX spot trading as an example (the method is consistent with futures trading), after entering the trading page, click on the pencil icon.
② Select the Fibonacci Retracements icon on the left side of the K-line chart.
③ Confirm the starting and ending points. It's clear that MX is in an uptrend. We select the lowest price point in September 2023 as the starting point and the highest point in June 2023 as the ending point for drawing. Place the mouse cursor on the lowest point and drag it upwards to complete the process.
In the MEXC App, you can also use Fibonacci retracements. Simply enter the K-line chart drawing page and select the Fibonacci Retracements icon, and the drawing method is the same as on the website. To access the K-line chart drawing page, please refer to the article 'How to Use Drawing Tools? (Basic K-line Version).'
Disclaimer: Cryptocurrency trading involves significant risks. This information does not provide advice on investment, tax, legal, financial, accounting, consulting, or any other related services, nor is it advice to buy, sell, or hold any assets. MEXC Learn is for informational reference only and does not constitute investment advice. Please ensure you fully understand the risks involved and invest cautiously. All user investment activities are unrelated to this site.
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