Surely you have heard it sometimes when someone talks about a chart of some cryptocurrency or some financial asset, even in other places you will have heard it, the Fibonacci sequence is an infinite series of numbers,come from adding the last 2 figures and add the result of that sum.
But the most amazing and beautiful thing about this numerical sequence is not exactly the graph of a financial asset, it is the fact that these numbers appear in a multitude of forms and phenomena of nature, in the stems of some plants, in the petals of many flowers, in a starfish...in a spiral galaxy.
behind the fibonacci sequence hides another even more mysterious and beautiful number, a value that since ancient times humans associated with the most perfect and harmonious proportions and that for many people idealizes the beauty of everything around us, it is so surprising that even came to associate with the gods.
This number begins with 1.61803 and can be add infinitely many decimal.
It is the golden number, the divine proportion, a number with many names but in mathematics it is known as "Phi".
Phi is a proportion between 2 segments, it is the result of measuring 2 distances between them, many measurements of nature have a relationship very close to phi, for example if we measure our height by the height at which our navel is, we will obtain a number close to 1.6.
In addition to Phi also derive other common patterns in nature, such as the golden angle, which is achieved by representing the golden ratio in a circle, in this way Phi describes the order of the leaves of a palm tree, of the scales of a pineapple, of the pipes in a sunflower.
But although Phi is one of the mathematical reasons that abounds in nature, it is not the only one, our world is loaded with geometry and symmetrical shapes at all scales, at all levels of organization, from the tiniest molecule to the most colossal cluster of galaxies, forms that we can explain with mathematical language, for many the language of beauty.
after knowing this ... how about we use the fibonacci sequence in trading? :) It is used a lot, maybe you have heard it many times, you have even seen it but you do not fully understand how it is done, I will try to explain how to use or how to see this sequence in the graph of any financial asset.
Before starting, you should convince yourself that indeed this number always appears after adding any number by its predecessor, for example, 0+1=1, 1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13...we will always add the result with the number that preceded it in our sum, now divide any number that you obtained as a result to a sum obtained in this way by the number that precedes it, the result It will always be 1.6 followed by digits or a number very close to 1.6, this will always happen. example: as we saw in the example of the fibonacci sequence 2 + 3 = 5, if you divide 5/3 = 1.66, if we do this with 2 larger numbers within the fibonacci sequence as 89 + 144 = 233, at divide 233/144 = 1.61, in the following sum in this sequence, 144 + 233 = 377, its division would give you the result of 377/233 = 1.61 ... it will always happen regardless of how big or small are our numbers the result will always be 1.6.
How is this used in trading?
The way to use the fibonacci sequence in trading is by using 3 mathematical proportions of said sequence to forecast a possible price decline that allows us to predict when we should buy or, if we have this asset, it will indicate that a retracement of the price is coming,or conversely, in a downward movement to be able to forecast when an asset will reverse its movement and become bullish, this is achieved by dividing a number by the one that follows to obtain a base of 61.8%, in our previous example 144+ 233 = 377 if we divided 89/144 the result would be 0.61, dividing a number by the number obtained from two upper positions we would obtain 38.2% (example 89/377 = 0.38), dividing a number by the number obtained from three higher positions we would obtain 23% (example 89/377 = 0.23), so we will use 23%, 38% and 61% of any movement, bullish or bearish ... although it may seem difficult to understand or to do it is very easy to get because nowadays there are free tools available on the internet that will do this work for us, we just have to indicate the lowest point and the highest point of a price in a certain time, in the images that I will put below, I made them in tradingview , It can be used for free, in the example we will observe the price of ETHEREUM from March 24 to today in order to know what trend the price is taking and at what points it can be reversed to a greater or lesser extent.
In tradingview open LAUNCH CHART, it will open a page like the one you see in the image, above on the left you can see that box that I tried to draw, there is where you will choose the asset you want to observe, in our case it is ETH / USD, After this we place the mouse cursor in the lower part of the graph and by holding down the left button we can expand the view of days or reduce it by moving to the right or left, when we have the proportion of days that we want to analyze we go to the tools on the side left of the screen and choose the tool that marks with a pink arrow (it is the closest thing to an arrow that my finger got on the screen), within the drop-down menu we choose FIB RETRACEMENT.
With that tool selected we will click on the lowest price within the time line that we want to analyze and we will move the mouse to the highest part of the price in the time line that we are analyzing, we left click again and it will be recorded, you can observe in the example those 3 figures that I told you about? 23%, 38%, 61%.
In the example,is bullish, 23% tell us that in that line the price would fall by 23% of that upward movement that we measured since March 24 in the image, 38% would be a 38% retracement, etc. .If we want to buy we will be interested in waiting for the price to fall below that line and wait for it to show a recovery (in the image you can see how the price fell below the 23% line and recovered considerably), however You can also see that it has been 8 days without being able to break that line upwards, so we will have to be careful, if it breaks at the top it would show us that this upward movement will continue, however if it falls below that line it could change trend and turn bearish, the next line to consider would be 38%.
If we are guided only by this mode of measurement and we want to buy that asset, we would wait for the price to break the line above to buy and go up in the upward movement that it was about to undertake (making sure that it is not a spontaneous rise, it is that is, when we are sure that it is not a small rise that did not last almost nothing, we should not take as a bullish movement something that has just broken the line until we see no signs that it is really heading up) or on the contrary If this did not happen, we would wait for the price to fall below the 23% line, it would mean that the price could go back and turn bearish, in which case we would wait, if the price continued to fall towards the next marked line (38% ) or even lower to the 61% line, (the 50% line I did not comment on because it is symbolic to indicate half of our 3 lines in which we are guided), each of those 3 lines must be considered, to buy (if the price rises above them) or wait (if the price falls below any of them), if on the contrary we already had this asset and we wanted to know if we should hold our asset or should we sell it, we will take a break down as a signal of possible sell and a break up as a sign that the upward movement will continue and therefore we will not sell yet.
We can take this same example in reverse when a trend is bearish, that is, just the opposite of the example in the image, we can clearly see that ethereum has an bullish trend in the time line that we have analyzed, we could try to predict the moment in which An asset will change direction, either to become bullish or bearish.
If you did not know this method and it seemed good to you, you can follow the movement of an asset and thus get to understand much better how to use it and be able to use it to improve your options to obtain profits, etc., here is the link to the page on which I made those measurements https://www.tradingview.com/
Thank you very much for stopping here, good luck!
