Why do traders choose Fibonacci retracement for analyzing the cryptocurrency market

The essence of the tool: from mathematics to practice

Participants in the cryptocurrency market are constantly looking for ways to predict price reversals. Fibonacci retracement is one of the most reliable technical analysis tools for this. It is based on an ancient sequence where each number is the sum of the two preceding ones: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so on.

However, in trading, it is not the sequence itself that is used, but the mathematical relationships between its members. These coefficients — 23.6%, 38.2%, 50%, 61.8%, and 100% — become key levels on the chart. The 61.8% ( known as the “golden ratio” ) holds special significance, as it is present both in nature and in financial markets.

How Fibonacci correction is applied in practice

The tool works like a grid of horizontal lines that define potential levels of support and resistance. The application algorithm is simple:

1. Find the significant price high and low on the chart.
2. Draw a trend line from the minimum to the maximum ( during an uptrend ) or from the maximum to the minimum ( during a downtrend ).
3. The system will automatically calculate the price reversal levels.

Let's consider a specific example: the asset rose from $471.30 to $793.86. After applying the Fibonacci correction tool, dotted lines appear at various levels. The golden ratio (0.618) indicates a price of $594.52 — a critical level where a reversal of movement is likely. This line is what experienced traders consider the most reliable for setting entry and exit points.

Practical Application in Strategies

Market participants use Fibonacci retracement to solve three main tasks:

Predicting Pullbacks in Uptrends. When the price starts to drop from a high, these levels indicate where a recovery may occur.

Placing protective orders. Stop-losses are often set just below the support level determined by the instrument to minimize risk.

Target Profit Planning. The 38.2% and especially the 61.8% levels serve as benchmarks for taking profits when resistance is reached.

Combining with Other Analysis Tools

Although the Fibonacci retracement shows good results, it is not advisable to rely on it alone. Professionals combine it with other technical tools: moving averages, the Relative Strength Index (RSI), trend lines, and trading volume analysis.

Synergy yields results: when the Fibonacci correction level coincides with the moving average or a key trend line, the likelihood that the price will reverse precisely at this point significantly increases. Such confirmation makes the signal much more reliable for entering a position.

The application of comprehensive analysis is the key to successful trading in the volatile cryptocurrency market.