In the realm of trading, there are quite a few technical indicators available for traders. For crypto traders to trade profitably, it’s recommended for a trader to limit their analysis to a two through four indicators that measure diverse aspects of the price action. The crypto market, and Bitcoin, in particular, tend to follow technical indicators rules as the market inclines to follow the same as the forex market. The two indicators discussed in this blog take volatility, retracement levels, and trend into account.
Fibonacci Retracement
Fibonacci Retracement is based on the Italian mathematician Leonardo Pisano’s simple calculation, also known as Fibonacci. The mathematician came up with what is known as the Fibonacci number sequence, which is founded on the assumption that every number is after 0 and 1, equals the sum of the two previous numbers, which means that the arrangement would look like this: 0, 1, 1, 2, 3, 5, 8, 13, etc. The calculation is simple, but this does not just apply to the crypto trading world but also to many natural world forms.
According to the Fibonacci calculation, each number is 1.618 greater than the number before it, called the golden ratio. Traders using the Fibonacci numerical order can stem other raw percentages like the Fibonacci retracement. Fibonacci retracement is used primarily among the most current lowest and highest price. The most common Fibonacci numbers are 38.2% and 61.8%, but 50%, 78.6%, and 23.6% numbers also held occasionally. Some traders will point out that not all percentages in the retracement are harmonized with the Fibonacci calculation. When traders use Fibonacci retracement, they look to assume the likely trend reversals as the main horizontal lines can be the precise points from where the price of the crypto coin can bounce in the other direction. Fibonacci levels are mainly psychological for traders. Fibonacci retracement works because so many traders are using it, and they work best in the lack of other standards or information. The given retracement also tends to repeat; if the first retracement is 61.8%, the second will often also be 61.8%.
Flags and Pennants
Flags and pennants are extension patterns that marked as a short consolidation period before the previous movement continues. The trend typically is heralded by a sharp increase or decrease in the price of the crypto asset. Flags and pennants are frequently used interchangeably and named because of the shape they form on trading charts. A flag or pennant is created when the crypto asset’s price either sharply rises or declines, then it is followed by a slight sideways price movement. This sideway price movement can either form a rectangular shape, a flag or pennant. The sudden rise or fall in the price before a flag or pennant is called the flag pole.
When a trader spots a flag or pennant pattern, they usually place a stop-loss order below the lower trend line for a bullish flag. Contrary, if the price trend is bearish, then a trader would often put a stop-loss order just above the flag or pennant. To predict the target price where the pattern might break, traders can analyze the flag pole’s price and then add this length to the bottom of the flag or pennant, for a bullish pattern. On the contrary, for a bearish trend, the flag pole’s extent is subtracted from the top of the flag or pennant.
The crypto market will always have its unforeseen market conditions. But the Fibonacci retracement and the flag & pennants indicators are amongst the most popular indicators that traders use to recognize high probability opportunities to trade in the crypto market.
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